RRG Charts

A Review of the RRG L/S Baskets

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Earlier today in Sector Spotlight, I discussed the various stocks inside the Long/Short baskets as I show them from time to time. The two RRGs above show both baskets as they currently are after the updates in Sector Spotlight.

Long

On the Long side, I removed EBAY and replaced it with WM.

EBAY

EBAY ran into resistance just below $65, while relative strength was not able to push higher beyond the high that was set earlier this year. This resulted in both RRG-Lines turning lower and now heading further down, which shows up as the tail rolling over on the Relative Rotation Graph. Combined with current weakness in the Discretionary sector, it seems better to look elsewhere.

WM

On the Sector RRG, the Industrials sector just rotated back into the leading quadrant from weakening. Zooming in on the individual stocks in the sector, WM stands out, as it is showing a long tail inside the improving quadrant and rapidly heading towards leading.

The recent break to new highs is another positive sign that is expected to help WM in gaining more relative strength in coming weeks. That makes it a good replacement to enter the basket on the long side.

Short

On the short side, ADBE started to gain relative strength, instead of the expected continuation of weakness against SPY. It has therefore been replaced by AWK.

ADBE

In the last two weeks, ADBE rapidly improved on the price chart and even took out the short-term falling resistance line, as well as horizontal resistance over the last three peaks. Relative strength followed and broke above its falling resistance, causing the JdK RS-Momentum line to pick up speed and approach the 100 level.

This means that the RRG-tail is now crossing over into the improving quadrant from lagging. Of course, there is still the possibility for a rotation on the left hand side and back to lagging from improving, but I'd rather switch now, and maybe get back in later, than stay on the wrong side for too long.

AWK

For the replacement on the short side, I went to the Utilities sector. On the sector RRG, XLU is positioned deep inside the lagging quadrant, the lowest ranking on the JdK RS-Ratio scale, and is still heading lower.

Zooming in on the individual stocks reveals AWK at a long tail, diving deeper into the lagging quadrant against XLU. And even more so when compared with SPY. The break from the rising channel is clearly visible on the price chart above, as well as the start of a new series of lower highs and lower lows. The recent rally has to be seen as a recovery within the newly established downtrend.

The break in relative strength cannot be missed. After a gradually rising RS-Line for two years, AWK's relative strength vs SPY is now starting to pick up downward momentum. This causes the tail to rotate almost opposite to ADBE, which makes it a good replacement on the short side.

Summary

Here's the summary sheet with the current positions that I showed in Sector Spotlight.

#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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