A Market Divided (2)
Signals are split evenly between offense and defense, pointing to a market at an inflection point.
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Risk Factors and Important disclosures
This material must be preceded or accompanied by a Prospectus. Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. Please read the prospectus before investing.
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A Market Divided (2)
SIGNAL SUMMARY
Key Takeaways:
• Signal 1 (Beta Rotation) now Risk-Off with the XLU/SPY 4-week RoC at 1.15%. Utilities are outperforming the S&P 500 over the past four weeks, a defensive rotation signature. The allocation remains 100% XLU (Utilities).
• Signal 2 (Treasury Rotation) is RISK-OFF on the latest May month-end reading. TLT returned 0.16% in May versus IEF at -0.35%. Long-duration bonds outperformed intermediate maturities, a defensive risk-appetite indicator. The signal will hold this reading through the end of June. The current allocation tilts toward long-duration Treasuries (VLGSX/TLT).
• Signal 3 (Lumber/Gold) is RISK-ON on the latest 13-week relative-performance reading. Lumber’s 13-week return of 1.30% exceeds gold’s -11.72%. All seven sub-strategies are positioned offensively, with cyclical exposures favored over defensive bond pairs.
• The S&P 500 at 7,431.45 sits +8.0% above its 200-day SMA of 6,881.99. Signal 4 remains Risk-On, with the allocation set to SSO (2x leveraged S&P 500). Trend remains intact even after Friday’s broad equity selloff.
MARKET COMMENTARY
The framework reads 2-2 Risk-On this week. 2 of four signals favor risk-on positioning and 2 signals flag defense. The S&P 500 closed at 7,431.45 on June 12, 2026, +8.0% above its 200-day moving average of 6,881.99.
The week ending June 12, 2026 closed with the S&P 500 at 7,431.45. The index continues to sit above its 200-day moving average, keeping the trend structure intact that has framed the year to date. Beneath the headline price action, defensive equity leadership has emerged — utilities are outperforming the broad market over the trailing four weeks, a rotation signature that often precedes broader risk-off behavior, and long-duration Treasury bids picked up versus intermediate maturities — a pattern consistent with this week’s Treasury Rotation reading. Earnings season has wound down with broadly stable forward guidance, and macro data continues to trace a soft-landing path, but valuations, positioning, and concentration risk all argue for tactical respect of the framework’s defensive readings.
At 7,431.45, the index sits +8.0% above its 200-day SMA of 6,881.99. That spread is comfortable enough to keep Signal 4 on the offensive 2x leveraged allocation. The technical setup remains constructive in the aggregate — price above a rising 200-day — but the divergence between the trend signal and the Beta Rotation and Treasury Rotation signals is the kind of split that historically precedes either a pause in the trend or a stronger rotation into defense.
The Beta Rotation signal is RISK-OFF with the XLU/SPY 4-week Rate of Change at 1.15%. Utilities are outperforming the broad market over the trailing four weeks, with the positive RoC reflecting persistent flows into defensive equity sectors. This rotation signature often emerges ahead of broader risk-off behavior and warrants attention. The framework’s allocation shifts to XLU (Utilities).
The Treasury Rotation signal is RISK-OFF on the latest May month-end reading. TLT returned 0.16% in May versus IEF at -0.35%, with the long bond outperforming the intermediate — a classic defensive risk-appetite signature. The signal will hold this May reading through the end of June. Long-duration outperformance during a backdrop of generally rising equity tells a story of yield-curve flattening pressure and creeping recessionary positioning at the long end. Combined with Signal 1’s utilities-led rotation, defensive positioning is broadening across multiple corners of the framework. A persistent Risk-Off Treasury signal alongside a Risk-On 200-day reading is the kind of divergence that historically signals an inflection point: either the equity trend resolves the divergence by following Treasuries lower, or Treasuries reconverge upward.
The Lumber/Gold signal is RISK-ON on the latest 13-week reading. Lumber’s 13-week return of 1.30% exceeds gold’s -11.72%. All seven Lumber/Gold sub-strategies are positioned offensively, with cyclical and growth-tilted pairs favored over defensive bond pairs. Lumber has held its bid as housing demand expectations firm, while gold has paused its rally near record levels. The relative dynamic stays Risk-On but the spread has narrowed week-over-week, and a re-acceleration in gold would flip the signal quickly.
The 2-2 Risk-On reading sits evenly split, an inflection-point posture where the framework offers neither full offense nor full defense. Mixed readings often precede broader pivots in either direction — either the defensive signals reconverge to risk-on, or the risk-on signals follow defense lower. The current setup demands tactical respect: maintain offensive allocations where signals call for them, recognize defensive allocations where they apply, and treat the disagreement among indicators as meaningful. The risks worth watching are an acceleration of the long-Treasury bid, further utilities outperformance that deepens the Beta Rotation defensive reading, equity selloffs that compress the cushion above the 200-day, or a flip of the Lumber/Gold spread back to gold-favored.
SIGNAL 1: BETA ROTATION
Based on: “Opposing Behavioral Forces: Beta Rotation” (SSRN 2417974)
Target Investor: Self-directed investors who want to capture relative strength between equity market segments. This signal uses the 4-week rate of change of the Utilities-to-S&P 500 price ratio to determine whether the market favors offense (broad equity) or defense (Utilities).
CURRENT INDICATOR: RISK-OFF
XLU/SPY 4-Week Rate of Change: 1.15%
Current Allocation: 100% SPY (S&P 500)
Growth of $100,000 | YTD from January 3, 2025 | Data: Lead-Lag Publishing, LLC
SIGNAL 2: TACTICAL RISK ROTATION
Based on: “A Quantitative Approach to Tactical Asset Allocation” (SSRN 2431022)
Target Investor: Conservative to moderate investors seeking a tactical overlay between equities and long-duration Treasuries. This signal compares the prior month total return of 10-year versus 30-year Treasury bonds to identify shifts in the yield curve’s risk appetite signal.
CURRENT INDICATOR: RISK-OFF
30yr Treasury (TLT) May Return: 0.16%
10yr Treasury (IEF) May Return: -0.35%
Current Allocation: 100% Long-Duration Treasuries (VLGSX/TLT)
Growth of $100,000 | Monthly Data from January 2025 | Data: Lead-Lag Publishing, LLC
SIGNAL 3: LUMBER/GOLD RATIO
Based on: “Lumber: Worth Its Weight in Gold” (SSRN 2604248)
Target Investor: Active investors seeking to rotate between offensive and defensive exposures across multiple asset class pairings. This signal uses the 13-week relative performance of Lumber futures versus Gold spot to determine the market’s risk appetite. When Lumber outperforms Gold, the economy is likely strengthening (Risk-On). When Gold outperforms, investors should favor defensive positioning (Risk-Off).
CURRENT INDICATOR: RISK-ON
