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1. US Cyclicals Rotation in Rich Territory 

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The Nasdaq 100 is testing its 50d MA and we have seen a sharp cyclical rotation out of Tech to other compartments of the market with markets betting on a Goldilocks backdrop into 2026 alongside greater discernment in the next phase of AI between the winners & losers. 

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However, we have just seen a weaker payrolls than expectations and the Fed dot plot is projecting only one cut next year (albeit two are priced). This does put into question the cyclical rally. 

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On Qi’s valuation model, XLK is only 0.7 sigma below its macro-warranted fair value – not yet a signal to expect outright relief for the sector. 

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However XLY (Consumer Discretionary) relative to SPY is at +2.3 sigma – close to 5yr highs. 

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XLK vs. XLY is at -1.7 sigma – at the lower end of its 5yr range. Since 2009, there have been 23 events at this level of dislocation. Two-thirds of the time XLK outperformed over the following 4 weeks. Below, note the tight correlation between the FVG and relative spot price performance – be cautious on the cyclical rotation.

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Continue reading our analysis on the other headlines by downloading the PDF below

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