Don't Ignore This Chart!

Is the Technology Sector at Risk?

Julius de Kempenaer

Julius de Kempenaer

Senior Technical Analyst, StockCharts.com

At yesterday's close XLK, the technology sector, rotated into the lagging quadrant. This happened a few times since the market started to rally out of the March low. On the daily chart to be exact.

On the weekly RRG, XLK remained far to the right inside the leading or the weakening quadrant during these rotations through lagging, improving, leading on the daily RRG.

Whether this will be another short-term rotation on the daily RRG while the weekly tail remains at the right hand side remains to be seen as there are a few significant differences between the prior daily rotations into lagghing and the current one?

First of all, the recent decline was clearly more vicious than we have seen before since March. And although the rhythm of higher highs and lows is still intact the magnitude of the decline is the biggest we have seen in this up-move.

On the price chart I am watching the horizontal level around $ 111 for support. XLK responded to that area a few times before so a drop below will certainly mean something, in this case negative.

Another thing that caught my eye is in the relationship between the two RRG-Lines, JdK RS-Ratio and JdK RS-Momentum. In all prior occasions the peaks in the RS-Momentum line preceded the peaks in the RS-Ratio line, which is expected behavior for a momentum based metric.

But in the period since XLK came back into the leading quadrant in August, RS-Momentum has peaked twice with the second peak slightly lower than the first one. In the same period RS-Ratio has also peaked twice but the second peak was much higher that the previous one.

I have not done a lot of work yet in researching divergences between RS-Ratio and RS-Momentum but this one is interesting enough to mention and start tracking from here onwards.

#StaySafe, --Julius

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Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
CreatorRelative Rotation Graphs
FounderRRG Research
Host ofSector Spotlight

Please find my handles for social media channels under the Bio below.

Feedback, comments or questions are welcome at Juliusdk@stockcharts.com. I cannot promise to respond to each and every message, but I will certainly read them and, where reasonably possible, use the feedback and comments or answer questions.

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RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered trademarks of RRG Research.

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 StockCharts.com 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