RRG Charts

Financials are leading but they are not all equally good

After the dust has settled, it is time to assess what is going on under the hood.

The above Relative Rotation Graph holds the 30 Dow Jones Industrials components. As usual, they are fairly evenly spread out over the canvas of the RRG plot. 

From the RRG of the US sector ETFs (further down in this post), it is very clear that the Financial sector is leading at the moment. In this post, I want to dissect some of the individual financial components inside the Dow Jones Industrials index. Spoiler alert: They are not all equally good ....

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How to use Relative Rotation Graphs to monitor your portfolio.

As (many of) you may know my fellow commentator Arthur Hill lives in Belgium. That makes him, geographically, my closest StockCharts.com colleague.

On Tuesday 8 November, indeed election day, the Amsterdam chapter of the MTA (Market Technicians Association) had Katie Stockton of BTIG over as a guest speaker for a breakfast presentation. Katie is a highly respected technical analyst among institutional investors and an early adapter of Relative Rotation Graphs which are now fully embedded in her workflow.

Arthur made the trip over to Amsterdam to attend the breakfast session, which gave the two of us the opportunity to spend some time together working on blog articles in one of my favorite coffee places in Amsterdam.

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Bond market charts look horrible but they show positive rotation on RRG

The Relative Rotation Graph above shows the rotation of various asset classes against VBINX, a balanced index fund holding 60% in equities and 40% in bonds.

The current rotational picture is highlighting a pretty clear rotational picture for various (groups of) asset classes.

The most important observation is that all three fixed income related asset classes are showing a positive rotational picture while, at the same time, their price charts are showing horrible technical pictures. So what's the message that we can get from this?

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Energy stocks on the run, watch APA & APC

Quick scan

The Relative Rotation Graph above shows the rotation of the various members of the S&P Energy sector against XLE as a benchmark.

As usual, there are some good and some not so good names found on the plot. Inside the weakening quadrant, NFX and SWN are heading for the lagging quadrant. Already inside this lagging quadrant, we find OXY and COG showing less favorable tails, suggesting a further move into negative territory.

On the positive side, we find TSO and FTI, still inside the improving quadrant but, close to crossing over into leading.

Already inside leading, APA, NOV, and APC seem positioned for (further) outperformance of XLE in coming weeks.

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Addressing RRG - Feedback and questions from ChartCon 2016

From a 100 degrees in beautiful Napa, via 70 degrees in Boston and New Hampshire, back to 50 and dropping in Amsterdam.

That pretty much sums up the excitement level that surrounds my ChartCon 2016 experience of last month!

Btw. In case you are wondering, the stop-over in Boston was because one of my daughters lives there. We went on a road trip to the White mountains in New Hampshire and drove along the Kancamagus highway which provided us with some stunning views of the trees changing their colors. Almost as stunning a visual as a Relative Rotation Graph ;)

During my talk at this online event, which all of you who attended can still replay on Livestream, I encouraged you to send in any questions and/or remarks using any of the social media channels or the special ChartCon Guidebook app ....

And so you did ..... In this post, I will try to address most of your questions and remarks. A promise is a promise you know.

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6 out of 10 sectors rotating in(to) lagging quadrant

The Relative Rotation Graph above shows the sector rotation for ten US sector ETFs. The new REITs sector ETF is not included yet due to a lack of historical data points.

The immediate catch on the RRG above is the separation of XLK and XTL in the leading quadrant while most other sectors are on the left-hand side of the 100-level of the JdK RS-Ratio axis.

Six sectors inside, or just rotating into, the lagging quadrant, does not get me very excited about the potential for the S&P 500 itself.

 

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Tech stocks dominate sector rotation but broader market at risk

The Relative Rotation Graph below holds the components of the Dow Jones Industrials index vis-à-vis the $INDU index.

The one observation that immediately stands out to me is the domination of technology stocks inside the leading quadrant. AAPL, MSFT, INTC, and CSCO are all positioned well inside the top right-hand quadrant, indicating that they are in (mature) relative uptrends against $INDU.

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Bonds under pressure and SPY no longer beating international equity markets

On the Relative Rotation Graph below, the rotation of various asset classes is shown against the Vanguard Balanced Index Fund (VBINX).

The single one tail that immediately stands out is the one of DJP (Commodities). Then there are IEF (Government bonds) on the far left inside the lagging quadrant and VNQ to the far right, on the verge of crossing from leading into weakening.

Inside the blue shaded area are LQD (Corporate Bonds), HYG (High Yield Bonds), and SPY (Equities). All three on a very short tail and no clear rotational path with SPY and HYG still on the positive side of the RRG and LQD just about to cross over into the lagging quadrant.

Putting SPY/$SPX on a Relative Rotation Graph with other (international) equity markets against the FTSE All-World Index provides a different picture!

 

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Facebook (FB) not able to keep up with XLK

The technology sector, as represented by XLK, started to show some positive sector rotation over the past month and last week managed to crossover from the improving quadrant to the leading quadrant on the weekly Relative Rotation Graph.

Reason enough to check out the relative technical conditions for the stocks that make up XLK as shown on the Relative Rotation Graph below.

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Strong rotation for Technology but SPY is still lacking fuel

To surrender or not to surrender? That's the question!

After a nice run up in the S&P 500, I started to worry about its ability to push higher when resistance levels coming off previous highs started to act up. At, more or less, the same time, sector rotation of US sectors began to show a pattern favoring more defensive sectors in the lead. Usually not a very good sign for the general market.

This started back in April-May, and the pattern of sectors labeled as defensive leading the market from a relative perspective is still in play.

The Relative Rotation Graph above shows the sector rotation for the S&P 500 sector ETFs (Telecom, XTL added as well). In this article, I will look into the relative positioning of the various sectors in relation to sector rotation models and what that means for the general market direction. 

 

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