Summary: Despite a sharp market sell-off led by technology and semiconductors, improving market breadth, resilient internals, and strength in value-oriented sectors suggest that rotation may be playing a meaningful role alongside broader risk aversion. However, weakening momentum, heavy distribution, rising volatility, surging oil prices, and risk gauges shifting to 100% risk-off warrant a defensive stance until market conditions stabilize. 

Risk On

• Despite the nasty sell-off, Market internals bucked the trend with the McClellan Oscillator holding up for the  S&P. (+)
• New high new low ratio trending higher and confirming the McClellan Oscillator reading, showing a potential broadening of the market or rotation rather than strict panic selling. (+)
• The percentage of stocks above key moving averages continued to improve off the lows, particularly for the S&P. (+)
• Seasonal trends tend to strengthen into October and into the last part of the year (Most of the time). (+)

Neutral

• Sectors were mixed, with technology (-7.7%)  and semiconductors (-10.5%)  selling off considerably while we saw about half of the sector up, including retail, energy, and healthcare with strong 3%+ moves. Some healthy rotation mixed in with risk-off in high speculative areas. (=)
• The color charts (moving average of stocks above key moving averages) are starting to show improvements, particularly on the shorter time frames. (=)
• Value and growth switch places, with Value closing in a bull phase and growth slumped into a warning phase. (=)
• Soft commodities pulled back off their highs, dipping below its 50-Day Moving Average. Copper is consolidating and compressing around its highs. (=)
• Gold went from looking heavy to more of a neutral reading. Oil is maintaining a bullish stance and closing at highs this week. A continued move from oil could send waves through the rest of the market. (=)
• The dollar this week hit its highest levels since April, 2025. (=)
• Bonds continued their rebound, gaping higher on Thursday from oversold levels. It's unclear if this was capitulation or if the dominant trend will continue. We would like to see IEF and TLT break above their 50-Day Moving Averages to indicate more of a capitulation reading. (=)

Risk Off

• Major U.S. indexes took a tumble with QQQ down over -5% and SPY off -2% on the week. Weakening momentum is confirming price action with all four indexes below their 50-Day Moving Average, and IWM below its 200-Day Moving Average. (-)
• Volume patterns were negative with significantly more distribution days than accumulation days across the board. (-) 
• Oil was one of the biggest gainers on the week, up over 9%. (-)
• Risk gauges  shifted to 100% risk-off. (-)
• Volatility broke out above its 50 and 200-Day Moving Averages and is at a 2-month high. (-)
• The modern family is mixed (weak risk-off), with retail and transportation improving and retail banks holding up, though the other components slipped on the week, particularly semiconductors. (-)
• EFA is in a warning phases and EEM slipped below its 200-Day Moving Average by Friday close. (-)

Actionable Trading Plan

Maintain a defensive posture as weakening momentum, elevated volatility, and risk gauges at 100% risk-off suggest continued downside risk. Reduce exposure to vulnerable growth and technology positions, particularly semiconductors, while avoiding aggressive new entries until selling pressure subsides. Look for selective opportunities in areas showing relative strength, including energy, healthcare, retail, and value-oriented stocks, but keep position sizes modest and stops disciplined. Monitor improving market breadth and internals for signs that the recent sell-off is more rotational than systemic, while watching oil prices, bond yields, and the dollar for additional pressure on equities. A sustained improvement in price action, volatility, and risk gauges would support gradually increasing exposure, but for now prioritize capital preservation, maintain higher cash reserves, and remain patient for clearer confirmation of a market recovery.