The Finest 5 Sectors, #22 | RRG Charts

Sector Rotation: A Week of Stability Amidst Market Dynamics

Final week introduced an intriguing state of affairs in our sector rotation portfolio.

For the primary time in latest reminiscence, we witnessed full stability throughout all sector positions — no modifications in any respect within the rankings.

1. (1) Industrials – (XLI)
2. (2) Utilities – (XLU)
3. (3) Client Staples – (XLP)
4. (4) Communication Companies – (XLC)
5. (5) Financials – (XLF)
6. (6) Expertise – (XLK)
7. (7) Actual-Property – (XLRE)
8. (8) Supplies – (XLB)
9. (9) Client Discretionary – (XLY)
10. (10) Healthcare – (XLV)
11. (11) Vitality – (XLE)

Weekly RRG: Regular as She Goes

The weekly Relative Rotation Graph (RRG) continues to color an image of gradual shifts. Utilities and Client Staples, whereas nonetheless occupying excessive RS ratio ranges, are transferring decrease on the chart. Utilities clings to the main quadrant, however Client Staples has simply crossed into weakening territory.

Financials and Communication Companies stay within the weakening quadrant, however their RS momentum ranges have stabilized. Communication Companies exhibits a slight uptick, whereas Financials maintains a detrimental heading — albeit nicely above the 100 mark.

Industrials, our present star performer, continues its reign within the main quadrant. It is gaining floor on the RS ratio axis whereas experiencing a minor dip in RS momentum. All in all, the weekly image stays basically unchanged from final week.

Each day RRG

Shifting our focus to the every day RRG, we begin to see extra nuanced actions:

• Staples and Utilities are rotating inside the bettering quadrant, shedding floor on the RS momentum axis with out gaining in RS ratio. This means additional weakening on the weekly chart is probably going.
• Financials have made their means into the bettering quadrant — a constructive improvement that builds on final week’s progress.
• Communication Companies is virtually aligned with the benchmark (SPY), displaying little distinctive motion.
• Industrials continues deeper into the weakening quadrant, however — and that is essential — its RRG velocity (the space between tail nodes) may be very low. This retains the door open for a possible curl again up earlier than hitting the lagging quadrant, which might reinforce its sturdy place.

Industrials: Breaking New Floor

The worth chart for Industrials is confirming its present power with a break above overhead resistance.

This breakthrough is prone to unlock extra upside potential, retaining the sector firmly on the high of our listing.

The relative efficiency continues to mirror this constructive momentum.

Utilities: Struggling at Resistance

As soon as once more, Utilities examined its overhead resistance (between 83 and 84) however failed to interrupt increased.

Costs retreated into the vary by week’s finish. This setback is inflicting relative power to drop again into its sideways buying and selling vary, with RRG traces rolling over.

The sector wants a swift enchancment in each worth and relative power to take care of its latest sturdy place.

Client Staples: Déjà Vu

Client Staples finds itself in an analogous boat to Utilities.

One other try to interrupt overhead resistance round 83.5 was met with a pullback. This sample has been repeating for weeks, and it is taking its toll on the uncooked relative power line.

Whereas the RS ratio stays excessive — a legacy of power because the 12 months’s begin — the speedy lack of relative momentum is inflicting the RS ratio to roll over.

Like Utilities, client staples want a fast worth enchancment to take care of its top-five place.

Communication Companies: Closing In

Communication Companies had a powerful week, closing close to the vary’s excessive finish and approaching its earlier peak simply above 105.

This enchancment has stored the uncooked relative power line towards SPY inside its rising channel.

Continued power, particularly if XLC breaks above 105, ought to maintain relative power in an uptrend and sure trigger the RRG traces to twist again up quickly.

Financials: Battling Resistance

Financials proceed to wrestle with its outdated rising assist line, now performing as resistance close to the 52 space the place the earlier excessive is positioned.

This worth stagnation has triggered the uncooked RS line to interrupt its rising assist, main the RRG traces to roll over.

The RS momentum line has already dropped beneath 100, and the RS ratio is beginning to transfer decrease.

We have seen the every day tail for XLF choose up barely — this acceleration must proceed within the coming weeks for XLF to take care of its top-five place.

Portfolio Efficiency

Because of the positions of Client Staples and Utilities, our high 5 stays defensively positioned. This has triggered our underperformance versus SPY to widen barely — we’re now simply over 6% behind because the begin of the 12 months.

Is that this supreme? After all not. However here is the factor — trend-following programs want time to play out. The worst factor you are able to do is abandon a technique simply because it is going towards you for just a few months. (And let’s be trustworthy, it is solely been since Could — so two months.)

I’ll keep the course, preserve self-discipline, and proceed to trace this portfolio based mostly on our established metrics.

It’s going to be attention-grabbing to see how lengthy it takes for this technique to return again on high and begin outperforming SPY once more. Endurance is essential in these conditions.

#StayAlert and have a terrific wee. –Julius