On the weekly Relative Rotation Graph, the tail for XLF has simply crossed over into the main quadrant whereas maintaining its rising relative momentum. This makes the financials sector one of many main sectors out there for the time being.
Prior to now week, XLF picked up 2.62%, making it the second strongest sector within the S&P500, which picked up “solely” 0.92%. The strongest sector was Shopper Staples, and Well being Care got here in at no 3.
That is fascinating as Financials is taken into account an offensive sector whereas Staples and Well being Care are hard-core defensive sectors.
The RRG under highlights all sectors touring at a constructive RRG-Heading (between 0-90 levels or North East). The inexperienced ovals on the finish point out offensive sectors, that are anticipated to steer in a powerful market ($SPX). Orange are delicate sectors. And the crimson ovals are on the defensive sectors that often lead throughout weak ($SPX) markets.
It is fascinating to see how blended that group is. Ranging from the precise, XLE is the strongest sector, adopted by XLI. Each are delicate sectors. The large distinction is the size of the path on each. Power clearly has a variety of energy behind the transfer, because it exhibits the longest tail within the plot. XLI is the other, with the shortest tail and loads much less relative momentum.
Well being Care and Shopper Staples’s tails are curling again in the direction of the main quadrant whereas touring via weakening. Having these sectors nonetheless in relative uptrends and displaying up on the prime of the weekly efficiency desk indicators that there’s nonetheless shopping for happening in protection.
The third defensive sector is lacking right here as it isn’t at a constructive RRG-Heading, however as you possibly can see within the first RRG, XLU is at a excessive RS-Ratio studying and contained in the weakening quadrant with an excellent chance of curling again up earlier than hitting the lagging quadrant.
The one two offensive sectors on this plot are XLF and XLB. XLF clearly sturdy, however XLB remains to be at a low RS-Ratio studying whereas crossing into the bettering quadrant. The delicate Communication Providers sector is displaying a really comparable rotation.
XLC and XLB are too low on the RS-Ratio scale to be thought of ‘main’ in relative pattern.
Because of this, XLF is the odd one out. And perhaps, extra importantly, the 2 heavy-weight sectors, Know-how, and Shopper Discretionary usually are not taking part.
Once I have a look at the chart of the S&P 500 with the above observations in thoughts, I have to conclude that the downtrend on each the each day and the weekly charts remains to be intact. The slingshot reversal on Thursday was certainly a pleasant transfer however thus far, probably not greater than that. As I’m scripting this on Friday morning, SPY touched the higher boundary of the falling channel after which began to retreat once more.
Sure, I acknowledge the energy of the reversal within the type of a bullish engulfing candle and the constructive divergence that has constructed up between the RSI and value. Nevertheless, each want a set off to verify that one thing underlying has actually modified.
I’m intently watching two ranges that have to get damaged, IMHO, for such a affirmation. First is the falling resistance line, which is now coinciding with the horizontal 370-level on the higher boundary of the assist zone through which we at the moment are. Second, and extra vital, is the final peak at 380. When that may be taken out, we have now a accomplished double backside after breaking a falling channel supported by constructive divergence.
So long as that’s not occurring, we’re nonetheless in a downtrend with the benefit of motion to the draw back.
#StaySafe and have an awesome weekend. –Julius
Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
Creator, Relative Rotation Graphs
Founder, RRG Analysis
Host of: Sector Highlight
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Julius de Kempenaer is the creator of Relative Rotation Graphs™. This distinctive methodology to visualise relative energy inside a universe of securities was first launched on Bloomberg skilled companies terminals in January of 2011 and was launched on StockCharts.com in July of 2014.
After graduating from the Dutch Royal Navy Academy, Julius served within the Dutch Air Pressure in a number of officer ranks. He retired from the army as a captain in 1990 to enter the monetary business as a portfolio supervisor for Fairness & Legislation (now a part of AXA Funding Managers).