RRG Charts

Adding FB As a Short to RRG Long/Short Basket Trade Ideas

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From time to time, I discuss possible long or short positions (stocks, ETFs) based on observations on Relative Rotation Graphs or ideas generated from them.

Currently, the baskets contain five positions each. Below, I will review all positions and come up with a few proposed changes to the mix.

Long

The RRG holds all the symbols that are currently in the long-basket. The good news is that all (continued to) outperform SPY over the last five weeks.

Clearly IVE is in a good place, positioned inside improving but traveling towards the leading quadrant at a strong RRG-Heading. The other four names lost some relative momentum lately, but managed to remain at the right-hand side of the RRG without losing (too much) on the JdK RS-Ratio axis.

Here are the individual charts.

FCX (keeping in long basket)

Despite some loss of relative momentum recently, FCX is still doing well and just broke to new highs. No need for action.

SEE (keeping in long basket)

SEE started rotating back up while inside weakening. The break above resistance on the price chart opened up new upside potential. Holding position.

IVE (keeping in long basket)

With the rotation out of large caps into small caps accelerating, there is no reason to move out of IVE yet. As a matter of fact, with the turnaround in relative strength becoming more and more clear, this could well be just the beginning of a bigger move.

XLB (keeping in long basket)

XLB lost a bit of relative momentum lately but still remains at the right side of the RRG (JdK RS-Ratio > 100). With price moving higher after breaking to new highs, things do still look good.

CTSH (keeping in long basket)

Price is still well within the boundaries of the rising channel, but relative strength is struggling a bit with overhead resistance. I am going to keep an eye on the developments in relative strength. For now, sticking with it.

SHORT

This RRG shows the current holdings in the short basket.

There were big hits recently to XLE and DISH, while AMD and PYPL are curling up inside the weakening quadrant. This basket needs some cleaning up.

Here are the charts.

DISH (remove from short basket)

DISH improved rapidly and has put a higher low into place on the price chart, while relative strength held above its previous low. Downside potential has diminished for the near term. Removing this symbol from the basket.

XLE (remove from short basket)

Rapid improvement for the worst sector for a long-term. The break of the falling resistance on the price chart and the sharp upward turn on the RRG (inside the lagging quadrant) point to at least a short-term further improvement. Taking XLE from the short basket for now.

IVW (keeping in short basket)

Just like IVE on the long side, IVW remains on the short side, with the Growth-Value rotation taking more and more shape.

AMD (remove from short basket)

AMD held up above support just below $75 and bounced higher, back into the consolidation. On the RRG, the tail on AMD started to curl back up and is now accelerating towards the leading quadrant. Removing AMD from the basket as there are better short-ideas to be found.

PYPL (keeping in short basket)

Relative strength for PYPL continues to weaken and the RS-Line is barely holding up above support. When this gives way, an acceleration lower is expected. The recent hiccup in relative momentum is taking place at very low RS-ratio levels, deep inside the lagging quadrant. Remains in short basket.

Replacements

I have identified three possible new shorts. The first one is Facebook (FB), a high profile name in the Communication Services sector. INTC and ADBE are in Technology.

Here are their individual charts with a short comment/reasoning.

FB (adding to short basket)

On the weekly RRG, FB is inside weakening and rapidly heading towards lagging. On the daily RRG, the FB tail is already well inside the lagging quadrant. With these two tails lining up, more relative weakness can be expected, which can also be anticipated form the RS-Line in the chart above, which is on the verge of breaking lower. Expecting underperformance versus SPY (and XLK) in the weeks to come.

INTC (adding to short basket)

INTC has been, and still is, one of the weaker charts in the technology sector, as it is trading at one of the lowest RS-Ratio levels in the universe. The recent recovery in relative momentum now seems to be offering a renewed entry opportunity on the short side.

On the price chart, the stock is still trading above an important long-term support level, slightly up-sloping; when that gives way, an acceleration lower may be expected. Relative strength has already broken to new 4-year lows.

ADBE (adding to short basket)

ADBE failed to record new highs for over two years now, while SPY, XLK, and many technology stocks did. This chart-technical behavior translated in a down-sloping RS-Line since August, while JdK RS-momentum already dropped below 100 in May, with a short hiccup in July. The recent rise in relative momentum did not manage to bring RS-Momentum back above 100 and kept dragging RS-Ratio lower, causing the ADBE tail to rapidly approach the lagging quadrant.

On the price chart, support is found at $440, while a new down-sloping channel seems to be taking shape!

Where are we so far?

Here is the P/L for all trade-ideas since I started tracking them. So far, each side had a maximum of five positions at $10.000 each, long or short. No accounting is done for lending or margin requirements.

#StaySafe, --Julius


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.

To discuss RRG with me on S.C.A.N., tag me using the handle Julius_RRG.

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
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