Weekly Report · Week 43: Defensives extend, chips and China fade

Week 43 · 19–23 October · completed New York closes to Fri 23 Oct. Daily read: four-hour signal against the daily trend. Weekly read: daily signal against the weekly trend.

Three of the five risk measures read risk-on, the same Mixed read as Week 42. Volatility eased, breadth improved and EM credit held, but the S&P 500 slipped and staples outperformed discretionary. The market is not leaving equities; it is still rotating inside them toward defensives, value and energy.

Rates eased for a second week. The 10-year yield fell to just under 5.00% and the 10-year real yield to 2.64%, both now sitting on their daily EMA55, which turns rates from a headwind into a neutral backdrop. Duration responded: TLT moved to Improving with neutral flow. The dollar was flat. Volatility settled at 19.44, still well above its rising daily EMA55, so the market is calmer than last week but not calm. One divergence stands out: gold fell 4.0% on the week even as real yields declined.

Lagging remains the largest group (12 of 36), and Leading narrowed to eight names concentrated in defensives, energy and value. Nine instruments sit in Improving, including equal-weight, financials, materials, utilities and regional banks: the four-hour signal has turned up while the daily trend has not.

The weekly uptrend is intact: 30 of 36 instruments hold a Bull weekly trend and 24 show weekly inflow. Underneath, the daily signal has turned down across much of it. 16 instruments now sit in Weakening on the weekly frame (weekly trend Bull, daily signal Bear), including growth, semis, small caps, Europe, emerging markets and gold, and none is Improving. Only six are Lagging on both frames: EMB, XLY, XLU, INDA, MCHI and TLT.

11 instruments in inflow, 20 in outflow and 5 neutral. The strongest weeks were software (IGV +6.0%), regional banks (KRE +3.8%) and biotech (IBB +2.9%); the weakest were communications (XLC −4.4%), China (MCHI −4.3%) and gold (GLD −4.0%). Software and regional banks rose sharply without their daily trend or flow fully turning, so the model reads them as rebounds rather than new leadership.

Furthest above the daily EMA55: EWZ +8.9%, XLE +8.6%, XLV +5.5%, IGV +5.1%, XLP +4.4%.
Furthest below: EWY −12.8%, SMH −8.3%, ICLN −8.0%, MCHI −7.0%, EEM −5.8%.

Each state carries two model reference levels fixed at publication: the extension level (one daily ATR beyond Friday's close) and the structure level (the daily EMA55), read on completed New York daily closes for four weeks. They are not trade levels.

XLI and MCHI are logged again after their Week 42 states extended. Only MCHI is negative on the weekly frame as well; XLC, XLI, SMH and GLD are negative on the daily frame inside a weekly Bull trend, so a weekly close below the weekly EMA55 is what would turn them structurally. MCHI and GLD sit more than three daily ATRs below their EMA55: distance from structure, not a forecast. XLE, XLV and EWZ (positive) and IWM, ICLN, EEM and EWY (negative) remain open from Week 42 with their published levels, so they are not logged again.

Weekly trend Bull, within 3.5% of the weekly EMA55, daily trend already Bear. Read over four weekly closes.

XLI, VNQ and EZU have already closed below their weekly EMA55; a second weekly close below would complete the change. Former leaders under pressure (weekly and daily trend Bull, four-hour signal Bear): SPY, QQQ, XLK, ARKK, EWJ and EWT. These are context, not logged.

Developing states are read for four weekly closes from publication. The full record, with what the model read for each state, is on the Logs page.

FOMC decision, Wed 28 Oct, 18:00 UK (press conference 18:30). The policy rate is 3.75–4.00% after the September increase, and previews expect a hold. US Q3 GDP (advance) and core PCE, Thu 29 Oct, 12:30 UK. The ECB and the Bank of Canada also decide this week.

What would change the read. If yields resume their climb after the FOMC, the rate-sensitive Improving group (TLT, XLU, VNQ, KRE) is the first place the model would expect to lose its four-hour turn. If yields keep easing and volatility falls back toward its EMA55, the Improving group is where a broadening would first show up as new Leading states. A move in the dollar would show up first in EEM, EWZ and gold.

All 36 instruments, sorted by distance from the daily EMA55.

General market research describing the output of a rules-based model. Not investment advice or a personal recommendation, and not an invitation to buy, sell or hold any investment. Levels are model reference points, not entry, exit or sizing instructions. Disclosure: Capital Flows model tracking in Q4 2026 runs on a paper (non-live) account; the author separately trades gold and Nasdaq-100 CFDs, which relate to GLD and QQQ. Markets carry risk and you may lose money; past model readings are not a guide to future results. Sources: TradingView (NY closes), FRED (DFII10, Thu 22 Oct), public economic calendars. Published by Blueprint Three Consulting Limited, which is not authorised by the Financial Conduct Authority.