RISK ON holds as the new week opens. The composite has eased from +55 to +42, a natural pullback after last week’s explosive rally, but the regime remains firmly RISK ON. SPY holds at $679.46, just below Friday’s level, with the RSI at 68 — approaching overbought territory but not yet there. The VIX has ticked up slightly to 20.8 from 19.2, remaining in normal range. The short-term has eased from +80 to +60, still solidly RISK ON. The medium-term has pulled back from +25 to +8, with 50-day breadth easing to 45%. The long-term remains unchanged at +50 with 52% above the 200-day MA. The notable change today is Financials slipping back to RISK OFF at -30, bringing the RISK OFF count back to 2.

Sector Leadership

5 sectors RISK ON, 4 CHOP, 2 RISK OFF — Financials slips back to RISK OFF:

💡 What We’re Watching

• RISK ON holds despite natural pullback — The composite easing from +55 to +42 is healthy consolidation after last week’s explosive rally. The regime remains RISK ON with both the short-term and long-term firmly positive. Markets rarely move in a straight line, and this kind of digestion after a sharp advance is exactly what a sustainable rally looks like.
• Financials slips back to RISK OFF — After briefly transitioning to CHOP last week, Financials has dropped back to -30 RISK OFF. The medium-term deteriorated to -70 and long-term remains at -40, suggesting the sector’s initial bounce was short-term driven. With the ST still at +70, Financials has the momentum to recover, but the medium-term damage will take time to repair. Earnings season, which kicks off this week with major banks, could be the catalyst.
• RSI at 68 — approaching overbought — After surging from 24 during the correction to 68 today, the RSI is nearing the 70 level that typically signals overbought conditions. This does not necessarily mean a pullback is imminent — strong markets can remain overbought for extended periods — but it does suggest the easy gains from oversold conditions have been captured.
• Medium-term consolidating at +8 CHOP — The 50-day breadth easing from 49% to 45% is the one metric that has not yet confirmed the broader recovery. If it can hold above 40% and build from here, it would support a more durable advance. A drop back below 35% would be a concern.

The Bottom Line

RISK ON holds as the new week begins. The pullback from last week’s highs is modest and orderly — exactly the kind of consolidation that builds a foundation for the next move higher. Five sectors remain in RISK ON, the VIX is still near 20, and 70% of stocks are above their 20-day moving averages.

In our view, the Financials sector slipping back to RISK OFF is the primary development to watch this week. Bank earnings begin in the coming days, and results will likely determine whether Financials rejoins the recovery or becomes a more persistent drag. The sector’s short-term at +70 suggests traders are positioned for a positive catalyst.

The broader market structure remains constructive. SPY continues to hold above all major moving averages, breadth is broad, and the recovery leaders — Utilities, Materials, Industrials, Real Estate, and Energy — continue to strengthen. Consumer Discretionary at -32 and Financials at -30 are the two sectors that need to participate for this rally to reach its full potential.