Free Weekly Report
Know what environment you're trading before you place the trade.
A weekly market intelligence report that identifies the current market regime and highlights which strategies are most likely to thrive.
The Federal Reserve raised interest rates for the first time since 2023, the Bank of Japan also tightened policy, and three members of the Bank of England's Monetary Policy Committee voted to hike. Yet the Market Compass Volatility score moved 4.2 points towards Low Vol.
How can that be?
The simple answer is that markets trade the difference between reality and expectations, not the headline in isolation. The Fed's quarter-point increase to 3.75%-4.00% was widely anticipated and approved unanimously. The Bank of Japan's rise to 1.25% was also expected. Once those decisions were known, some uncertainty disappeared even though the higher-rate environment itself remains a risk.
The daily volatility data show the distinction clearly. VIX reached an intraday high of 18.94 on the Fed day, but fell to 15.44 on Thursday and closed Friday at 14.81, below the previous Friday's 15.84. The market did react to the decision; it simply ended the week calmer than the announcement-day move suggested.
What Changed This Week?
🟢 Direction: 71.3 → 68.7 (still Strong Bull; down 2.6 points)
🟢 Volatility: -69.9 → -74.1 (still Low Vol; down 4.2 points towards the calmer end)
Regime: Strong Bull / Low Vol remained stable
The S&P 500 slipped just 0.1% for the week, but that calm headline concealed a mixed market. The Nasdaq gained 0.7%, while the Dow fell 1.7% and the Russell 2000 lost 1.5%. The majority of stocks declined on Friday even as the S&P 500 edged higher. Direction's modest fall to 68.7 fits that picture: the broad trend remains strong, but participation and momentum were less convincing than the index headline alone suggests.
Volatility moving back to -74.1 does not mean the rate rises are harmless. It means realised and implied market movement settled after the events passed. The Fed funds rate is only one price of money. The 10-year Treasury yield reached 5% during the week, and oil remained above $100 a barrel. Those longer-term borrowing costs and inflation pressures may matter more to equity valuations than whether one well-telegraphed policy decision added another quarter point.
Central banks also delivered mixed responses rather than a single global message. The Fed and Bank of Japan raised rates. The Bank of England held at 3.75%, but the vote was 6-3 and all three dissenters preferred an increase to 4%. The ECB had raised its key rates the previous week. The direction of travel is therefore tighter, but the timing and urgency differ by economy.
Trend-following and relative-strength approaches that stay aligned with the Strong Bull regime while demanding confirmation from market breadth.
Selective exposure to leaders rather than assuming a flat index means all sectors are behaving alike.
Pullback entries with defined risk, particularly where rising yields can affect valuation-sensitive shares.
Position sizing that allows for announcement-day volatility without confusing one intraday spike with a lasting regime change.
Treating a rate hike as an automatic sell signal after markets have already priced much of the decision.
Assuming that Low Vol means bonds, oil and inflation no longer present risks.
Chasing the headline index while ignoring weaker participation beneath it.
Short-volatility positions sized as though another policy or geopolitical surprise cannot occur.
The Market Compass remains Strong Bull / Low Vol. Direction eased to 68.7, while Volatility reversed part of the previous week's rise and settled at -74.1. That combination says the trend remains constructive and weekly conditions are calm, but the weakening Direction score and uneven index performance argue for selectivity.
There is no rule saying a rate increase must produce higher volatility. If a decision is expected, credible and removes uncertainty, volatility can fall even while borrowing costs rise. What matters next is whether tighter policy begins to change growth, earnings or investor positioning.
The coming week is lighter on major policy decisions but heavy on interpretation. Flash US manufacturing and services PMIs arrive on Wednesday, followed by jobless claims and new-home sales on Thursday, then durable goods and revised consumer sentiment on Friday. A full slate of Fed speakers will also offer clues about whether September's increase was a single adjustment or the beginning of a broader tightening sequence. Costco's Thursday results provide a useful company-level view of consumer demand and costs.
As always, Market Compass describes the current environment; it does not predict the next move.
See you next week,
Jeff Boccaccio
Have you ever had a strategy that worked brilliantly for months, only to suddenly stop working?
Most traders and investors have.
The reality is that markets move through different environments over time. Trend following strategies, momentum systems, mean reversion approaches, breakouts and even long-term investment portfolios all tend to perform better under certain conditions and struggle under others.
The challenge is recognising when those conditions are changing.
Many market classification methods are either too simplistic to be useful or so complex that they're impossible to interpret. And none of them are perfect.
Market Compass was created to bridge that gap.
It combines multiple proven approaches to market regime analysis, including methodologies inspired by Van Tharp and Ken Long, alongside proprietary factors that each contribute a different perspective on the market environment.
The goal isn't to predict the future with certainty.
Instead, it's to help answer a few practical questions before you deploy capital:
What type of market are we operating in right now?
How has the environment evolved over recent weeks?
What should we be paying attention to next?
What types of strategies have historically worked best under these conditions?
Sometimes the most important investment decision isn't what to trade but understanding the environment you're trading in.
Market Compass is designed to give you an instant snapshot of the market environment.
Think of it like a navigation tool for changing conditions.
North represents more bullish conditions.
South represents more bearish conditions.
East represents higher volatility and more turbulent markets.
West represents calmer, lower volatility environments.
The large marker shows where the market is right now.
The trail behind it connects the weekly readings from recent weeks, allowing you to see how the environment has evolved over time.
Has the market become stronger?
Is volatility increasing?
Are conditions improving or deteriorating?
At a glance, the Compass helps you understand not just where we are, but where we've been and what that journey may mean for traders and investors.
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