Despite today’s rally, my risk model still points to a transition market (Stage 2)

I track the market using a framework that combines macro indicators, volatility and breadth to classify the current **risk regime**.

Even with today’s upside move, the data still suggests we’re in what I call **Stage 2: Transition**, rather than a clean risk-on phase.

Some of the current signals:

• ISM Manufacturing: 52.4 (still in expansion)
• 10Y–2Y spread: +0.58
• VIX: \~21 (not panic, but still elevated)
• DXY up \~1.2% over the last 30 days
• Russell 2000 roughly flat over 30 days
• Crypto Fear & Greed: 10 (extreme fear)

So we have **growth data holding up**, but risk appetite isn’t fully aligned.

In strong risk-on regimes I usually expect to see:

• Small caps clearly leading
• The dollar weakening
• Volatility compressing
• Sentiment recovering from fear

Right now we’re seeing **selective leadership rather than broad participation.**

That tends to be characteristic of transition phases where the market moves between fear and optimism.

These environments often produce:

• sector rotation
• range-bound markets
• occasional breakout attempts that fail

For my model to move into **Stage 3 (risk-on)** I’d want to see:

• Russell 2000 accelerating meaningfully
• the dollar weakening
• volatility compressing further
• sentiment recovering toward neutral levels

Until those align, I tend to treat rallies with a bit more caution.

Curious how others here see the current regime.