The Trough Is Forming, But Patience Is Still Required

The ROQ portfolio has been in its Defensive allocation since July 9. Sixteen trading days in, the internal structure of the market is showing early signs of a potential turn, but the data isn't mature enough yet to call it a recovery with conviction.

The Defensive Period in Review

The allocation did its job, protecting capital relative to the growth benchmarks while the market worked through a meaningful correction.

• Defensive: −1.26%

• EW4 Passive: −1.56%

• Bullish Continuation (counterfactual): −1.88%

• S&P 500: −0.87%

Defensive outperformed both the passive EW4 benchmark and what the growth allocation would have returned by a meaningful margin. SPY edged out Defensive during this stretch; the Dow component of the Defensive allocation underperformed the broader S&P 500 during this particular correction, creating a modest drag. That's the expected trade-off.

The broader picture remains intact. Since inception, the portfolio's lead over SPY stands at nearly 7 percentage points. The Defensive period trimmed that lead modestly; that's exactly what a corrective phase is supposed to do, and the conservative posture limited the damage relative to staying in the growth allocation.

The Trough Is Forming

In recent posts, I've noted that the internal reset appeared incomplete, and the ROQ Signal hadn't reached the deeply oversold levels that historically precede quality recovery signals. That began to change this week. The primary signal dropped to its lowest reading since the May trough, reaching deeply oversold territory for the first time this cycle, before turning up modestly on Friday.

Friday's close did produce a Day-1 signal under the model's entry criteria. If Monday confirms the same conditions, a transition out of Defensive executes at Tuesday's open. Whether that transition comes with leverage or without depends on where VIX closes Monday. At 18.58 it clears the gate, but it doesn't leave much room.

I'm watching this closely rather than anticipating it. The setup is better than it has been at any point since May. But better isn't the same as confirmed, and the model requires two consecutive days of agreement before acting. Monday's close will tell us a great deal.

Where Things Stand

• ROQ Portfolio (inception to date): +15.23%

• S&P 500: +8.26%

• EW4 Passive Benchmark: +12.13%

• Alpha vs SPY: +6.97pp