I've alo been considering a cash option for my sector selections. In my own backtesting the long sector outperforms the short sector (on average) even during drastic market moves. A long XLK hedged against a short XLE would have continued to make money even after being stopped out.

I'll work on my own ruleset to incorporate those kinds of conditions for the sector test. My own "neutral" setting may simply be hedged instead of in cash.

In such a condition a stop loss may only stop out half of the position and enter a stop limit entry point for the hedge.