US Sector Note - Rotation, Not Retreat

Quantmatix · US Sectors · Institutional Research

US Sector Note — Rotation, Not Retreat: the Summer Leaders Cool, Semiconductors Keep Sliding, and Energy & Defensive Staples Hold the Line

The Week in One Read

The negative read. This was a broad give-back by the summer’s leaders. Every sector that led in July lost breadth on the week — Utilities fell from 80% to 53% Advancing, Real Estate 51%→34%, Financials 67%→58%, Health Care 66%→58%, Consumer Staples 68%→55%. The model’s highest-conviction signals turned defensive with it: Top Quantmatix reads are net-negative, 15 to 5, and the single cleanest one-directional cluster is now a negative one — Health Care, which has swung from the market’s biggest positive cluster a fortnight ago to nine fresh High Score Negative Reversals, ten further negative reversals and five Top Quantmatix Negative reads (CVS, ICON, Neurocrine, Ligand). Office real estate is exhausting alongside it (BXP, Vornado).

The positive read. Two pockets held their conviction. Energy is the one clean positive cluster in the book — five fresh Deep Positive Reversals in the gas-weighted producers (EQT, Range, Northern Oil), zero negative reversals against them, and a Top Quantmatix Positive in Viper Energy. And defensive food & staples carry the model’s highest-conviction longs even as their breadth eased — Costco, Tyson and Post are all Top Quantmatix Positive. Underneath, Information Technology was the only sector to gain breadth (28%→41%), as Amazon (+17% on the week) and Microsoft (+22%) bounced hard on earnings while Apple rolled over from stretched.

Highest Expected-Value Signal Reads

The three Top Quantmatix Positive names that also carry TEVO — the model’s top signal tier — ranked by EV. EV is the probability-weighted blend of the two Ref. Levels less the two Downside Refs.; Freq. is the model’s historical reversal-completion frequency to the first Ref. Level. The sector detail and clusters that frame them follow below.

Costco and Tyson sit inside the week’s defensive-staples positive cluster — beaten-up on score, turning up, with Costco’s 85% Freq. the highest read in the book. Globus Medical carries the richest EV of any Top Quantmatix Positive, but it is a name-specific read: it stands apart from an otherwise-heavy health-care tape rather than inside a positive sector cluster. Viper Energy (Top Quantmatix Positive, EV +4.1%) is the named leader of the cleaner Energy cluster covered below.

Universe Signal Tally — Week Ending 31 July

Fresh reversals split evenly (24 up / 24 down) and the high-conviction Top Quantmatix reads lean 3-to-1 negative — the signature of a consolidating, rotating tape rather than a directional one. A Deep Positive Reversal is a beaten-up name (Q −4 to −10) turning up; a High Score Negative Reversal is a stretched name (Q +7 to +10) turning down.

Where the Model’s Conviction Sits

The Read — Four Things the Signals Are Saying

1  ▲  Energy is the only clean positive cluster. Five gas-weighted producers fired fresh Deep Positive Reversals with nothing turning down against them, and Viper Energy carries a Top Quantmatix Positive — a one-directional signal concentration off deeply washed-out scores.

2  ▲  The high-conviction longs went defensive. The Top Quantmatix Positive reads are concentrated in food & staples (Costco, Tyson, Post) — a flight to quality-defensives even as the sector’s breadth eased.

3  ▼  Health Care is the exhaustion story. Nine High Score Negative Reversals and five Top Quantmatix Negative reads make it the cleanest negative cluster — a full reversal of its mid-July leadership. Office real estate is exhausting with it.

4  →  Tech is stabilising, not surging. Breadth improved on the Amazon and Microsoft earnings bounce, but the reversal balance is still net-down and Apple is rolling over — a two-way rotation, not a cluster.

Sector Overview — Every US Sector

“Adv.” is the share of a sector with a rising weekly Q Score (context); “fresh +/−” counts the confirmed Deep Positive Reversals against the High Score Negative and other negative reversals dated to the latest week — this is where the clusters are read.

The Clusters — Where the Signals Concentrate One Way

Energy — one-directional positive. The cleanest cluster in the market: five fresh Deep Positive Reversals in the gas-weighted producers — EQT (Q −4.3), Range Resources (−4.0), Northern Oil & Gas (−6.1), VAALCO (−6.9) and Vitesse (−8.4) — with no negative reversals against them and Viper Energy carrying a Top Quantmatix Positive. The whole complex is turning up from deeply washed-out scores (sector Adv. just 27%).

Consumer Staples — a defensive conviction cluster. The model’s highest-conviction longs sit here: Costco, Tyson and Post are all Top Quantmatix Positive, with TEVO reinforcing Costco and Tyson. It is a one-directional positive concentration in food & staples — a quality-defensive bid running while the cyclical leaders cool.

Health Care — one-directional negative. The mirror image, and the week’s most important shift. Two weeks ago health care was the market’s largest positive cluster; this week it fired nine High Score Negative Reversals and five Top Quantmatix Negative reads (CVS Q +8.7, ICON +8.6, Neurocrine +8.3, Ligand +7.6) against just two Deep Positive Reversals. That is an exhaustion cluster, not a two-way rotation.

Information Technology & Financials — rotations, not clusters. Both are pulling two ways. Tech gained breadth on the Amazon/Microsoft earnings bounce yet still shows more negative reversals than positive; Financials stayed high on score but gave back breadth with banks stretching. Neither is a one-directional cluster this week — they read stock by stock, not as a call.

AI & Semiconductors — the Mid-July Call, Updated

The chip call has deepened, not faded. Our mid-July read — the semiconductor chain rolling over while beaten-up software turns up — is intact and sharper this week. Only 2 of 59 semiconductors advanced (3%), and the deterioration accelerated: the group’s average weekly score change was −1.68, worse than the −0.97 of the week before, and its average score fell from +2.0 to +0.3. Every semiconductor carries a negative reversal, and every bellwether lost score week-on-week — AMD 6.9→5.7, Micron 4.4→2.4, KLA 4.1→2.1, Qualcomm 0.3→−2.0 — with prices down double digits (KLA −13%, NXP −15%, Qualcomm −12%, Micron −11%). The AI-chip leaders sit in the same camp: Nvidia’s score slipped to −0.4 and is declining, Broadcom −0.7 and declining.

The other half of the call is playing out too. The “software comes back” leg has confirmed — Software & Services breadth rose from 39% to 60% Advancing and its score change turned positive (+0.31) — and the mega-cap cloud names bounced on earnings with their scores improving, not just their prices (Microsoft score +1.7 on a +22% week, Amazon +0.6 on +17%). The AI money that moved this week moved into cloud and software, not the chips.

A month-end caveat, and how the model cuts through it. This print closed July, so window dressing and rebalancing flows can overstate the recent winners into the month-end. The test is price against signal. Where both rose — Microsoft, Amazon, the software group — the turn is corroborated and is more than flow. Where a price popped but the score fell and the negative reversal held — a couple of chips bounced into the close (Monolithic +7%, Teradyne +5%) yet their scores dropped (−0.6, −2.1) — that is the fingerprint of flow without a turn, and the chip group fell hard regardless. The read for clients: the negative semiconductor call is intact and has deepened; the constructive side of the same call is software and the cloud mega-caps, not the silicon.

Magnificent Seven — Velocity Read

Split by earnings: Amazon and Microsoft turned up hard on results; Apple rolled over from stretched; the rest stayed soft.