Don't Ignore This Chart!

Market is still playing defense!


The recent rally of the S&P 500 index off the lows near 2600-2625 is nice but is it sustainable?

The Relative Rotation Graph above shows the rotation of the 11 SPDR sector ETFs against SPY and the message is very clear!

There is a clear split between the sectors. Four sectors are inside the leading quadrant and they are all still heading higher on the Jdk RS-Ratio scale, i.e. gaining relative strength versus the S&P 500.

There are six sectors inside the lagging quadrant and only one (XLF) is in the improving quadrant.

If we look at the tails and the curves of the rotation we see especially long tails on three out of the four sectors inside the leading quadrant. This means strong moves that are likely to continue for Staples, Utilities and Real Estate. Healthcare shows a shorter tail but that sector recently went through a small correction which only flattened the rotation a bit.

This means that the leading quadrant is entirely populated by defensive sectors.

The opposite goes for the leading quadrant. Here we find all sectors that can be characterized as offensive. Technology and Discretionary moved over from weakening a few weeks ago and both are still heading lower on the RS-Ratio scale.

Industrials rolled over into lagging again from improving, maintaining its weak relative strength.

XLB,XLC and XLE are way to the left in negative territory and seem to be turning to the right again without even reaching the improving quadrant.

All in all this Relative Rotation Graph is, still, sending a RISK OFF message.

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Julius de Kempenaer | RRG Research
RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered TradeMarks ®; of RRG Research

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Julius de Kempenaer
About the author: is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on in July of 2014. After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers). Learn More
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