& SECTOR ROTATION ANALYSIS

Saturday, February 08, 2026 – 6:45 AM PST

Timothy McCandless – Protected Wheel Strategy

SECTION 1: MARKET OVERVIEW

Friday’s Close Action

SPY: $693.23 (+1.97%) | Strong bounce off Thursday’s weakness

QQQ: Rebounding | Tech sentiment: RECOVERING but week negative

Russell: $2,670.34 (+3.60%) | Small cap action: SURGING – rotation leader

VIX: 17.76 (-18.42%) | Fear gauge: COMPRESSED after Thursday spike

10-Year: 4.22% (+4 bps) | THE SILENT KILLER: Rising from 3-week low

Week in Review – Key Themes

• Thursday: Weak jobs data = flight to safety, tech sold hard
• Friday: Risk appetite returned, tech bounced, small caps led
• Tech (Nasdaq) still DOWN 4% week-over-week despite Friday bounce
• Russell 2000 UP 7.5% YTD vs Nasdaq DOWN 1% YTD
• DEFINITIVE ROTATION away from mega-cap tech into Materials/Industrials

SECTION 2: SECTOR ROTATION STATUS

Sector Leaderboard (YTD Performance)

🟢 STRENGTHENING (Accumulation):

1. MATERIALS (XLB) – +9.05% YTD | RS: STRONGEST | Volume: Heavy buying

• Gold, metals, mining “outstanding” performance
• Real asset inflation hedge in play
• Geopolitical uncertainty = sustained driver

2. INDUSTRIALS (XLI) – +24.43% past year | RS: STRONG | Defense surge

• $1.5 trillion defense budget proposed (2027)
• GE Aerospace, RTX exceptional strength
• Manufacturing/reshoring tailwinds

3. HEALTHCARE (XLV) – Schwab OUTPERFORM | RS: STEADY | LLY catalyst

• Eli Lilly “firing on all cylinders”
• Defensive + growth characteristics

🔴 WEAKENING (Distribution):

1. TECHNOLOGY (XLK) – -1% YTD, -4% week | RS: DETERIORATING | Selling

• Software “getting hammered”
• Forward P/E compressed 10.7 points
• AI spending concerns (Amazon -8% on capex)

2. CONSUMER DISCRETIONARY (XLY) – Underperform | RS: WEAK | Stress visible

• Chipotle traffic down 4th straight quarter

ROTATION TYPE: BROADENING RALLY – Away from expensive mega-cap growth

MONEY FLOW:

• Rotating FROM: Technology, Software, Mega-cap Growth
• Rotating INTO: Materials, Industrials, Small Caps, Real Assets
• Pattern: NOT defensive rotation – Risk diversification, value seeking

SECTION 3: MOMENTUM SCAN RESULTS

SCAN CRITERIA: Mid/Large cap, >$1B, Above 20-day & 1-day SMA, 0-10% from 52-week high, Up last week, Ascending pattern, Weekly options available

STOCKS MEETING CRITERIA: 47 stocks found

Top Candidates by Sector

MATERIALS (XLB) – 8 candidates ⭐ PRIORITY SECTOR

• FCX (Freeport Copper): 3% from high | ATR: 2.8% – RICH PREMIUM
• NEM (Newmont): 5% from high | ATR: 2.1% – GOOD PREMIUM
• LIN (Linde): 2% from high | ATR: 1.6% – PREMIUM AVAILABLE

→ Assessment: STRONGEST SECTOR + MOMENTUM SCAN = TOP PRIORITY

• Sector RS: +9.05% (LEADING all sectors)
• Institutional volume: ELEVATED
• Catalyst: Real asset rotation, geopolitical hedge
• Collar Setup: IDEAL – Strong RS + Rich premium + Weekly options

INDUSTRIALS (XLI) – 6 candidates ⭐ PRIORITY SECTOR

• GE (GE Aerospace): 4% from high | ATR: 2.0% – GOOD PREMIUM
• RTX (Raytheon): 6% from high | ATR: 1.8% – GOOD PREMIUM
• HON (Honeywell): 3% from high | ATR: 1.5% – MODERATE PREMIUM

→ Assessment: DEFENSE SUB-SECTOR PARTICULARLY STRONG

• Catalyst: $1.5T defense budget proposal
• Government spending = predictable revenue
• Collar Setup: FAVORABLE – Strong trend + government backing

TECHNOLOGY (XLK) – 3 candidates ⚠️ CAUTION SECTOR

• NVDA (Nvidia): 8% from high | ATR: 3.5% – VERY RICH PREMIUM
• AMD (Advanced Micro): 7% from high | ATR: 3.2% – RICH PREMIUM

→ Assessment: FRIDAY BOUNCE – REAL OR DEAD CAT?

• Sector RS: DETERIORATING (-1% YTD, -4% week)
• Distribution pattern all week
• Collar Setup: WAIT – Need 3+ days of strength confirmation
• Exception: IF you believe AI capex cycle, chips bouncing

KEY FINDING: 8 Materials + 6 Industrials = 14 stocks in STRONGEST SECTORS also meeting momentum criteria. This is WHERE THE EDGE IS.

SECTION 4: TODAY’S COLLAR TRADE OPPORTUNITIES

Priority 1 – Strong Sector + Momentum + Premium

✓ Ticker: FCX (Freeport-McMoRan Copper & Gold)

• Sector: Materials (XLB) – Relative Strength: STRONGEST (+9.05% YTD)
• Momentum: 3% from 52-week high, Above 20-day MA, Up last week
• ATR%: 2.8% (Premium: RICH – Excellent for selling calls)
• Setup: Buy 100 shares + Sell weekly call 5% OTM + Buy monthly put 10% OTM
• Why Now: Materials leadership, real asset rotation, mining strength
• Edge: Selling rich premium in sector with institutional accumulation

✓ Ticker: GE (GE Aerospace)

• Sector: Industrials (XLI) – Relative Strength: STRONG (defense surge)
• ATR%: 2.0% (Premium: GOOD – Weekly premium available)
• Why Now: $1.5T defense budget catalyst, aerospace cycle strong
• Edge: Government-backed revenue visibility, predictable cash flows

✓ Ticker: LLY (Eli Lilly)

• Sector: Healthcare (XLV) – Schwab OUTPERFORM
• ATR%: 2.2% (Premium: RICH – GLP-1 hype = elevated IV)
• Edge: Defensive characteristics + growth story = both protection & upside

Avoid Today

• SOFTWARE STOCKS – Forward P/E compression, distribution pattern
• CONSUMER DISCRETIONARY – Consumer stress signals, Chipotle weakness
• REAL ESTATE – Treasury yield pressure, THE SILENT KILLER active
• FINANCIALS – Policy uncertainty (rate cap proposal) outweighs earnings

SECTION 5: 10-YEAR TREASURY IMPACT

The Silent Killer

Current Yield: 4.22% | Change: +4 bps Friday | Trend: RISING off 3-week low

Current Position: 4.22% = NEUTRAL ZONE (between 4.0% support and 4.3% resistance)

IF YIELDS CONTINUE RISING (above 4.30%):

• Helps: Financials (XLF) – better lending margins
• Hurts: Real Estate (XLRE), Utilities (XLU) – dividend competition
• Collar Implications: STAY IN Materials/Industrials, avoid rate-sensitive

WATCH LEVELS:

• 4.30% resistance – Break above = Materials/Small caps may pause
• 4.10% support – Break below = Rate cut acceleration

SECTION 6: INSTITUTIONAL FLOW WATCH

Monday 6:40-9:00 AM Window

What to Watch in Opening 30 Minutes

1. Do Materials (XLB) and Industrials (XLI) get morning volume?

• If YES: Rotation continues = ADD TO FCX, GE, NEM on any dip
• If NO: Rotation pausing = WAIT, don’t chase

2. Does tech show follow-through or distribution?

• Watch: NVDA, AMD, MSFT for volume and price action
• Looking for: If chips continue Friday bounce = AI capex thesis alive

3. Russell 2000 vs SPY – which leads the open?

• Russell gaps up again = Rotation confirmed, stay in small/mid caps

SECTION 7: BOTTOM LINE – MONDAY’S GAME PLAN

Thesis

Major sector rotation from tech to Materials/Industrials/Small caps. Hunt collar opportunities in sectors with INSTITUTIONAL ACCUMULATION (XLB, XLI) rather than fighting DISTRIBUTION (XLK). Your edge = following money flow.

Execute

• Primary: FCX collar IF Materials shows morning strength with volume
• Primary: GE collar IF Industrials/Defense maintains Friday momentum
• Secondary: LLY collar (defensive backup if market unclear)

Your Edge Today

You’re hunting in sectors where INSTITUTIONS ARE ACCUMULATING:

• Materials +9.05% YTD = Clear leadership
• 8 stocks in Materials meeting momentum scan = Not random
• Defense budget = Multi-year predictable catalyst
• Retail is still chasing tech bounces = You’re ahead of the curve

The FinViz scan CONFIRMS what sector rotation shows: Money in Materials & Industrials. When your momentum scan AND sector analysis ALIGN = HIGH PROBABILITY SETUP.

RISK LEVEL: MODERATE

PREMIUM ENVIRONMENT: GOOD TO RICH

KEY STAT: Russell 2000 +7.5% YTD vs Nasdaq -1% YTD

This isn’t noise. This is rotation. Follow it.

Commentary compiled: February 8, 2026, 6:45 AM PST

Data sources: FinViz scan, Market data through Feb 7 close

Next update: Monday, February 10, 2026