Subtle Differences Between Equal Weight and Regular Sector RRGs

The image above shows two Relative Rotation Graphs for US sectors, side by side. The one on the left is the RRG (as I usually use it in my blogs and the Sector Spotlight show) holding 11 US sector ETFs, the SPDR ETFs offered by State Street. The one on the right also holds the 11 US sectors, but, in this case, they are the Equal Weight versions as they are offered by Invesco.

At first, the rotations and the tails on the various sectors look similar, which isn't surprising. But there are a few subtle differences.

Technology is Strong, But Not as Strong as It Looks

On the regular RRG, XLK is emerging as a defensive sector. As a matter of fact, it is the strongest sector measured on the JdK RS-Ratio scale. On the equal weight RRG, however, Utilities and Healthcare have already surpassed Technology, while Staples is rapidly catching up. All three equal weight sectors have longer tails and strong RRG-Headings, which makes them more interesting than the EW tech variant.

The fact that, on both RRGs, Technology is showing up inside the leading quadrant - and still is traveling higher on the RS-Ratio scale - ultimately still underscores the observation of Tech being/becoming a more defensive sector in this day and age.

More Pronounced Staples-Discretionary Split

On the regular RRG, the consumer sectors, staples and discretionary, have recently been traveling more closely and in sync. At the moment, XLP is accelerating from improving into leading, while XLY is stationary inside improving, at just above 100 on the JdK RS-Momentum scale, but rotating towards lagging.

On the EW RRG, Staples (RHS) is powering into the leading quadrant while Discretionary (RCD) is shooting off into lagging. Although both relationships are in favor of staples over discretionary, the EW version is more aggressive.

The two charts above show both relationships on a regular chart. On the upper chart, after a clear downtrend over 10+ years, XLP:XLY has completed a symmetrical triangle formation and is now breaking its long-term falling resistance line. The lower chart shows RHS:RCD, which has moved much more sideways and has now shot above the peak level that was seen back in 2008/2009.

Both ratios suggest further upside for Staples vs. Discretionary, suggesting a continued risk-off approach to the stock market.

-- Julius

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Julius de Kempenaer

Senior Technical Analyst, StockCharts.com

Creator, Relative Rotation Graphs

Founder, RRG Research

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