Summary: Markets flipped decisively risk-on after Powell’s dovish comments sparked a Friday surge, pushing DIA to new all-time highs and IWM to 2025 highs, with broad sector strength, improving internals, expanding breadth, and record-low volatility readings. While seasonals remain supportive into the end of August and foreign equities confirmed the breakout, some caution lingers as short-term overbought signals appear in small caps, volume patterns are mixed, and inflationary pressure plus weak seasonality in September may temper momentum.

Risk On

• After trending down most of the week, markets got a strong surge on Friday on dovish comments from Powel regarding a potential rate-cut in September. DIA put in a new all-time high and IWM hit a 2025 high. IWM and DIA are starting to run a bit rich on the real motion indicator (+)
• Sectors were up strong on the week with predominately bullish phase patterns. We saw a slight underperoformance/rotation out of technology and semiconductors. (+)
• Market internals improved across the board with the McClellan Oscillator turning positive with plenty of upside before reaching overbought conditions. (+)
• New high new low ratio remained strong with significantly more new highs on Friday after the large move. (+)
• The risk gauge remained fully risk on from last week. (+)
• The  cash VIX put in its lowest readings since last December. (+)
• The number of stocks above key moving averages is stacked and sloped positive but could be overbought on the short-term, especially in IWM. (+)
• Market breadth expanded with value putting in new highs and growth holding steady. (+)
• The modern family is very strong with nearly all member in bullish phases and pushing out to recent new highs. Three of the six are outperformining the S&P on longerterm triple play readings. (+)
• Confirmed positive breakouts to new highs in foreign equities, confirming the positive moves in U.S. equities. (+)
• Bitcoin recovered from a bit of a risk-off scenario back into its recent trading range and above its 50-Day Moving Average. (+)
• Seasonals remain strong through the end of August. However, September tends to be the weakest seasonal month of the year. (+)

Neutral

• Volume patterns are neutral, with the DIA positive and the other three are neutral to slightly negative. (=)
• The color charts (moving average of stocks above key moving averages) remain mostly positive on the longer 200-Day periods, with much more mixed signals on the 50 and 20 Day periods. Nasdaq was overall the weakest of the three indexes. (=)
• Despite talks of a rate cut, DBA hints of continued inflationary pressure despite the market surge. (=)
• Gold moved back into a bull phase but remains stuck in a wide trading range since April. (=)
• The short-end of the yield curve looks a little better than the long-end but neither have moved significantly out of their recent trading ranges. (=)
• The one month verses three month ratio of volatility has hit its highest levels in years and suggest that market sentiment is running rich (=)

For Actionable Trading Guidance:

1. Lean Into Risk-On Momentum (But Watch Overbought Levels)

• Small Caps (IWM): The breakout to 2025 highs suggests continued upside, but real motion indicators show overbought. A tactical play could be buying dips into support (e.g., the 20-day moving average) rather than chasing new highs.
  

• Dow Industrials (DIA): With all-time highs confirmed and breadth improving, holding or adding exposure to large-cap value names could benefit from this rotation.
  

2. Sector & Rotation Opportunities

• Rotation out of Tech/Semis: Relative underperformance in technology and semiconductors suggests a near-term pause. Consider lightening up or hedging tech exposure (QQQ, SMH) while overweighting value, industrials, and financials that are confirming bullish phases.
  

• Modern Family (Retail, Transports, Biotech, etc.): With most components outperforming, favor baskets of “real economy” sectors for next week over purely growth/tech plays.
  

3. Market Internals & Breadth Plays

• With the McClellan Oscillator positive and new highs broadening out, a breadth-driven strategy (e.g., equal-weighted S&P, RSP) may outperform cap-weighted indexes if leadership broadens beyond mega-cap tech.
  

4. Global & Alternative Assets

• Foreign Equities (EFA, VEU): Breakouts in non-U.S. markets suggest global confirmation. Consider allocating to international developed equities, which may now participate in the rally.
  

• Bitcoin: Having reclaimed its 50-day moving average, Bitcoin may be positioned for another leg higher. A stop below the 50-day MA could define risk for a short-term swing trade.
  

• Gold: Although back in a bull phase, it remains range-bound. Better as a hold/hedge rather than an active buy until it clears resistance.
  

5. Seasonal Awareness

• Seasonals: August tends to stay strong, but September is historically weak. Traders could ride risk-on momentum next week while starting to scale into hedges (e.g., VIX calls, put spreads in SPY/IWM) in anticipation of seasonal weakness.