The start of 2026 has been volatile for U.S. equities, with major indices struggling out of the gate. Elevated implied volatility—evidenced by the recent uptick in the CBOE Volatility Index (VIX)—has emerged as a dominant theme. In this environment, investors may benefit from shifting focus toward more defensive areas of the market, such as low-volatility strategies. Pairing core equity exposure with low-volatility allocations can meaningfully reduce portfolio risk, often with a smaller tradeoff in expected return than many anticipate.

The chart below highlights the relative strength (RS) relationship between the SPDR S&P 500 ETF Trust (SPY) and the Invesco S&P 500 Low Volatility ETF (SPLV), displayed using a 3.25% reversal scale. In August 2025, SPY generated a buy signal against SPLV, reflecting sustained long-term relative strength. However, as of March 27, the RS relationship has reversed into O’s versus SPLV, indicating emerging near-term weakness in SPY relative to low-volatility equities.

Examining the signal history of the RS switching strategy reveals only five instances since 1998 where the relationship has shifted between buy and sell signals. The RS switching strategy column illustrates the hypothetical results of rotating between SPY and SPLV based on which asset is favored at each signal. Starting with $100,000 in 1998, this approach would have grown to approximately $704,000—outperforming a buy-and-hold allocation to SPY ($514,000) or SPLV ($458,000). This underscores the long-term benefit of maintaining exposure to areas of strength.

Further analysis of periods immediately following RS reversals shows a similar pattern. Portfolios that adjusted holdings at these inflection points achieved a higher ending value, with the strategy resulting in a current value of approximately $629,000—again exceeding the outcome of holding either fund in isolation.

Lastly, we evaluated a static allocation model consisting of 60% SPLV and 40% SPY, rebalanced monthly. While capital protection rather than return maximization is the primary objective, the long-term results remain compelling. The model delivered a compound annual growth rate of 9.11% for price returns, compared to 7.18% for the S&P 500. More notably, the portfolio exhibited a materially lower standard deviation and a higher Sharpe ratio (0.57 versus 0.33). The maximum six-month drawdown was also significantly reduced. While this allocation has lagged during recent risk-on periods, the inclusion of SPLV has historically provided disproportionate benefits on the risk-adjusted side of the equation.

In an environment marked by rising volatility and weakening equity participation, incorporating relative strength and low-volatility frameworks can materially improve portfolio resilience. Whether through tactical RS switching or a strategic allocation to defensive exposures, these approaches emphasize capital preservation while maintaining exposure to long-term upside. As market leadership narrows and uncertainty remains elevated, focusing on areas of relative strength becomes increasingly critical for navigating the path forward.

Through Thursday’s (3/26) close, U.S. equity indices have been mixed, with some—like the S&P 500 Index (SPX)—eyeing a potential fifth negative week, while the Russell 2000 Index (RUT) has rallied more than 2%. The positive performance divergence for mid- and small cap stocks throughout the week has provided enough positive action to increase the bullish percents (BP) for the S&P Mid Cap 400 (^BPSPMID) and the S&P Small Cap 600 (^BPSPSML), reversing both charts back into a column of Xs following Wednesday’s (3/25) action. The current reading for the mid‑cap bullish percent is 42%, after the indicator had fallen to 34% following last Friday’s (3/20) action. Unlike the mid‑cap BP, the small cap BP settled above its November 2025 chart low before reversing back into Xs to 44%.

Given the reversals in these bullish percents, the tables below break down the index constituents by NDW sector that have returned to buy signals since both indicators’ chart low on 3/20. Monitoring sectors and subsectors contributing to increasing participation in large indicator universes, like the index-related ones discussed here, can provide insight into those areas poised to contribute to a rebound.

Encompassing mostly stocks that have returned to buy signals during this week’s action, notable NDW sectors showing near‑term increases—and contributing to the index BP reversals—include semiconductors, electronics, and machinery and tools. The mid‑cap space also saw increases from leisure and retailing, while banks, chemicals, and healthcare were notable contributors to the small cap BP reversal.

While highlighting those sectors and subsectors potentially positioned for increased participation, the lack of contributors in other areas can also be informative. For example, insurance currently shows 0% of its index constituents contributing to the BP reversal, while index constituents from oil already have nearly 100% of the stocks on buy signals.

Among the stocks contributing to the index BP reversals by returning to buy signals are Casey’s General Stores (CASY) and The Timken Company (TKR).

Casey’s (CASY) has been a “5‑for‑5’er” since November of last year and has maintained a higher TA rating of 3 or greater since May 2023. The stock has held a long‑term relative strength buy signal against the market since March 2020 and against its peer group since September 2023. It currently ranks within the top decile of the Retailing sector matrix and has maintained a positive trend on the default point‑and‑figure chart since March of last year. Wednesday’s (3/25) trading returned the stock to a buy signal by breaking a double top at $696 as shares rallied to a new all‑time chart high at $720. The stock is okay to consider here on the breakout or on a pullback into the upper‑$600 range. Initial support lies at $656, with additional support at $632 and $608.

Timken (TKR) increased to a “4‑for‑5’er” following Tuesday’s trading and after the peer relative strength chart returned to a column of Xs. Prior to this attribute increase, TKR had been an acceptable 3 TA‑rated stock since January, and the market relative strength chart had also returned to a column of Xs. On the default trend chart, TKR has been in a positive trend since October of last year and returned to a buy signal during Tuesday’s (3/24) trading before reversing back into Os during Friday’s (3/27) intraday action. The stock is okay to consider in the upper‑$90 to lower‑$100 range. Initial support lies at $95, with additional support in the lower‑$90s and upper‑$80s.

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