The best: Communication Services still in progress, check the Industrials
Let’s see compared to last week which are the American sector indices that confirm the strength and which ones have slowed down or reversed the trend. According to a weekly time frame reading of the Relative Rotation Graph US sector indices that are outperforming the S&P 500 (benchmark) with a strengthening of both relative strength and momentum is theS&P 500 Communication Services. and in the last week theS&P 500 Industrials. In the quadrant of the leading sectors we also find S&P 500 Energy e S&P 500 Financials, which are continuing to outperform the benchmark in terms of relative strength, but are losing ground in terms of momentum. These sectors substantially confirm last week’s trend and are the best set up to date.
Highlights: Real Estate continues its strong recovery
Positive signals fromS&P 500 Real Estate which marks a four-week streak of recovery in both relative strength and momentum. Therefore, an index to be monitored even if it continues to underperform the reference benchmark.
The Worst: the most penalized the defensive ones like Health Care
In the quadrant of distressed sectors we find Consumer Discretionary e Health Care. Both have been losing ground in relative strength and momentum over the past four weeks. Always among the worst but the first signs of improvement in terms of momentum rather than relative strength are showing the defensive indices Consumer Staples e Utilities.
Quick guide to reading the Relative Rotation Graph
The Relative Rotation Graph (RRG), is a tool based on methods and algorithms developed by Julius de Kempenaer. This tool is very useful for analyzing trends in relative strength of different equity sectors against a benchmark and the momentum. In particular, the real power of this tool lies in its ability to plot relative performance on a graph and show the sectoral rotations. The RRG uses four quadrants to define the four phases of a relative trend: “weakening”, “falling”, “improving” and “rising”. Sectoral rotations therefore consist in the gradual passage of sectoral indices from one quadrant to another.
To read the RRG correctly, it is necessary to understand the meaning of the two main inputs underlying the instrument: JdK RS-Ratio and JdK RS-Momentum. The JdK RS-Ratio, present on the horizontal axis, is in fact an indicator of relative strength and tells us if the sector index in question, for example the S&P 500 Financials, is outperforming or underperforming the benchmark, in this case the S&P 500. JdK RS-Ratio equal to 100 in fact implies a movement of the sector that can be overwritten with that of the benchmark, therefore with little added value. A JdK RS-Ratio greater than 100 implies greater relative strength, while less than 100 implies lower relative strength. The JdK RS-Momentum instead, it is a momentum indicator and tells us how quickly this sector outperformance or underperformance movement occurs on the benchmark. Also in this case JdK RS-Momentum equal to 100 tells us that the sector has developed a trend strength equal to that of the benchmark. A JdK RS-Momentum less than 100 indicates a less directional (fast) movement, while if it is greater than 100 it is the opposite.
As we said therefore, the Relative Rotation Graph generates four quadrants. The strongest stocks can be found in the upper right corner (quadrant “On the rise”) And are the leading sectors in that market situation. They are outperforming “Weakening“, But those in the lower right quadrant have slowed compared to the benchmark and therefore are at risk of underperforming, or entering the” quadrant “Down“. In fact, if the pace of performance decreases further, the sector will begin to underperform ending up in the lower left quadrant. From here, if the sectors begin to recover momentum moving more strongly than the benchmark, they will pass into the quadrant “Improvement”And are candidates to return to that of the“ Rising ”, as soon as they return to outperform the benchmark.
To find information on the different European sectors visit the link.
To find information on the different American sectors visit the link.
For more detailed information on the tool visit the link.