Sector Rotation & Allocation Strategy

Sector Rotation & Allocation Strategy

Overview

• This advanced indicator analyzes the relationship between Defensive and Cyclical sectors to identify market regimes and generate precise buy/sell signals. It automatically detects which asset you're viewing and provides tailored recommendations based on current sector rotation dynamics.

What It Does

• Identifies Market Regime – Determines if markets are in Risk-On (growth) or Risk-Off (defensive) mode Auto-Detects Your Asset – Classifies the current chart into one of 11 sectors Generates Trading Signals – Provides BUY/SELL signals based on sector alignment with market conditions Multi-Timeframe Analysis – Offers allocation recommendations from 1 week to 12 months
• Value Assessment – Scores each asset 0-100 to determine if it's a good trade NOW

How It Works
Market Regime Detection The indicator compares Defensive Sectors (Health Care, Consumer Staples, Utilities) against Cyclical Sectors (Technology, Financials, Energy, Industrials, Materials, Real Estate, Discretionary, Communication).
Risk-On Market (Green, >0):

• Cyclical sectors outperformingEconomic growth expectedInvestors favoring growth stocksAction: Buy cyclicals, reduce defensives

Risk-Off Market (Red, <0):

• Defensive sectors outperformingUncertainty or fear in marketsFlight to safety occurringAction: Buy defensives, reduce cyclicals

Understanding the Four Tables
1. MARKET REGIME (Top Left)

• Market Regime: Current state – RISK-ON or RISK-OFF Bias: Which sector type is favored right now Strength: STRONG/MODERATE/WEAK – conviction level Current Sector: Your asset's sector classification
• Signal: Trading recommendation for your specific asset

2. SECTOR RANKINGS (Top Right) Shows relative strength of all 11 sectors vs SPY benchmark.

• Rel Str: Percentage outperformance/underperformance vs market Signal: ✓ = Outperforming, ✗ = Underperforming, − = Neutral

3. ALLOCATION RECOMMENDATIONS (Bottom Center) Suggested portfolio allocation between Defensive and Cyclical sectors.

• 1 Week: Tactical – follows current regime closely (70/30 split) 1 Month: Near-term positioning (65/35 split) 3 Months: Medium-term allocation (60/40 split) 6 Months: Balanced approach (50/50 split)
• 12 Months: Strategic/Contrarian – assumes mean reversion (40/60 split)

4. ASSET ANALYSIS (Bottom Left)

• Sector: Auto-detected sector classification Value Rating: STRONG BUY / BUY / HOLD / REDUCE / AVOID Value Score: 0-100 numerical assessment Rel Strength: How this asset performs vs SPY
• Regime Fit: Is this asset aligned with current market regime?

Trading Signals Explained
BUY Signals

• Oscillator crosses above oversold (30)Asset's sector is gaining momentum
• Regime is favorable for that sector

SELL Signals

• Oscillator crosses below overbought (70)Asset's sector is losing momentum
• Regime is turning unfavorable for that sector

How Value Score Works (0-100)
Relative Strength (40 points max):

• Asset outperforming SPY by 5%+ → 40 pointsAsset outperforming SPY by 2-5% → 30 pointsAsset outperforming SPY by 0-2% → 20 pointsAsset underperforming slightly → 10 points
• Asset underperforming significantly → 0 points

Sector Alignment (30 points max):

• Defensive in Risk-Off OR Cyclical in Risk-On → 30 pointsMisaligned sector → 0 points
• Unclassified → 15 points

Momentum (30 points max):

• RSI > 60 → 30 pointsRSI 50-60 → 20 pointsRSI 40-50 → 10 pointsRSI < 40 → 0 points

Interpretation:

• 80-100: STRONG BUY – High conviction opportunity 65-79: BUY – Favorable setup 45-64: HOLD – No clear edge 30-44: REDUCE – Unfavorable conditions
• 0-29: AVOID – High risk of underperformance

Best Practices

• Use Daily Timeframe or Higher – More reliable signals Combine with Price Action – Confirm with support/resistance Monitor Regime Changes – Transitions offer the highest ROI Respect Risk Management – Always use stop losses
• Don't Fight the Regime – Buying defensives during Risk-On is low probability

Disclaimer This indicator is for educational and informational purposes only. Past performance does not guarantee future results. Conduct your own research before making investment decisions.
Version: 6.0 Author: bigcitytom Last Updated: February 2026