The Utilities/S&P 500 has flipped back to risk-on following last week’s market action that saw defensive stocks finally capitulate in full to more cyclical areas of the market. The sharp swings in lumber prices have made it a little more difficult to interpret the lumber/gold signal. The holdout, again, remains Treasuries.
The S&P 500 gained more than 2% last week, but three of my four signals are still risk-off this week. Treasuries have remained relatively firm overall and the utilities sector is still hanging among the market’s leaders. The VIX has also been settling down into more of a typical range suggesting that the market may be reverting back to a normalized environment.
This week’s signals have actually turned more risk-off than before. The lumber/gold and utilities signals remain risk-off as they have for the past several weeks, and are now joined by the Treasuries signal, which flips after a sharp rally. The whipsaw volatility over the past couple of weeks could make these signals a little difficult to interpret over the short-term.