RRG Charts

Bonds under pressure and SPY no longer beating international equity markets

On the Relative Rotation Graph below, the rotation of various asset classes is shown against the Vanguard Balanced Index Fund (VBINX).

The single one tail that immediately stands out is the one of DJP (Commodities). Then there are IEF (Government bonds) on the far left inside the lagging quadrant and VNQ to the far right, on the verge of crossing from leading into weakening.

Inside the blue shaded area are LQD (Corporate Bonds), HYG (High Yield Bonds), and SPY (Equities). All three on a very short tail and no clear rotational path with SPY and HYG still on the positive side of the RRG and LQD just about to cross over into the lagging quadrant.

Putting SPY/$SPX on a Relative Rotation Graph with other (international) equity markets against the FTSE All-World Index provides a different picture!

 

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Facebook (FB) not able to keep up with XLK

The technology sector, as represented by XLK, started to show some positive sector rotation over the past month and last week managed to crossover from the improving quadrant to the leading quadrant on the weekly Relative Rotation Graph.

Reason enough to check out the relative technical conditions for the stocks that make up XLK as shown on the Relative Rotation Graph below.

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Strong rotation for Technology but SPY is still lacking fuel

To surrender or not to surrender? That's the question!

After a nice run up in the S&P 500, I started to worry about its ability to push higher when resistance levels coming off previous highs started to act up. At, more or less, the same time, sector rotation of US sectors began to show a pattern favoring more defensive sectors in the lead. Usually not a very good sign for the general market.

This started back in April-May, and the pattern of sectors labeled as defensive leading the market from a relative perspective is still in play.

The Relative Rotation Graph above shows the sector rotation for the S&P 500 sector ETFs (Telecom, XTL added as well). In this article, I will look into the relative positioning of the various sectors in relation to sector rotation models and what that means for the general market direction. 

 

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Tech stocks starting to look cool again, Financials not so much... yet!

Over the past few weeks, I have argued in some my posts that the state of sector rotation would not back a strong rise for the general market. The "defensive" sectors were simply too strong compared to the, more, cyclical sectors which are usually needed to push a market higher. 

At the moment, I still believe this argument holds up although technology, one of the sectors that we need for a broader push higher, seems to be picking up again, at least the tech stocks that are in the Dow Jones Industrials index.

The Relative Rotation Graph below holds the components of $INDU and shows improvement for the tech stocks but less so for financials, which is another sector that usually needs to do well in for an uptrend in SPY to materialize.

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Real Estate shines, Stocks are still good, US stocks are even better.

The Relative Rotation Graph below shows the rotation for various asset classes (through ETFs) against the Vanguard Balanced Index fund (VBINX) on a weekly basis.

The picture is pretty conclusive for some asset classes but less so for others. Zooming in on the daily time-frame, usually, helps to add a bit more info and color to the weekly reading of the RRG.

The RRG of international stock markets relative to the FTSE all world index also paints an interesting picture for US stocks. 

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Utility stocks are boring .... really?

On the Relative Rotation Graph of the S&P economic sectors (GICS I), Utilities is one of the leading sectors as measured by the JdK RS-Ratio.

As described in my last RRG blog on US sectors, the fact that Utility stocks and Staples are leading the current sector rotation, tells us something about the underlying strength (or weakness) of the S&P 500 itself. The jump higher last Friday did not change the defensive rotational pattern yet, so, for now, I will stick with a scenario holding serious downside risk for the stock market (i.e. $SPX).

Generally, utility stocks are seen as "boring", that is why they always show up when markets ae getting in trouble because in those circumstances; "boring is good". But are they really that boring?

The RRG below holds the members of the XLU ETF.

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Staples and Utilities in the lead, what does that tell you?

Over the past few weeks markets, in general, experienced a lot of volatility and a lot of comments have are focussing on the general state and direction of the broader market indices around the world. In my last blog about US sector rotation, the conclusion was that the relative rotation of US sectors was not supportive for a rise in the S&P 500. Let's see if and how the rotational patterns have changed since then.

The Relative Rotation Graph below holds the 10 (9 + Telecom) sector ETFs that make up the entire S&P 500 universe and shows the sector rotation relative to the S&P 500 index (center of the chart).

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BrExit did not stop VZ from breaking to new highs

When you look at the Relative Rotation Graph (below) holding the members of the Dow Jones Industrials index without knowing what date the snapshot was taken you would not be able to tell that a major historical event had just happened....

Obviously, I am talking about the surprising outcome of the Brexit referendum last Thursday and the market's response to that result on Friday. Thousands of words have been typed, scores of analysis reports have been published about the "as if and when" of both possible outcomes. And the markets.... they just continue their rotational behavior. Clearly, they are affected by the outcome, but the rotation continues. Let's see if this event managed to break some trends or create new ones.

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How to show "currency rotation" on a Relative Rotation Graph.

Currencies or Forex are a strange beast in financial markets. The FX market is the biggest in the world with trillions of dollars (worth) traded around the clock but no central marketplace. There is no such thing as the 'New York Currency Exchange' or the 'European Currency Exchange'.

If you trade in FX, you always trade 'over the counter' with your bank or a broker, etc. It is very well possible that at the exact same time someone else trades the same currency through another bank at a different price...

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Commodities (DJP) on the move?

The rotational pattern of the various asset classes on a Relative Rotation Graphs is showing interesting patterns at the moment. The RRG below holds a number of ETFs that cover Equities, Government Bonds, Corporate Bonds, High Yield Bonds, Real-Estate and Commodities. The benchmark is VBINX, the Vanguard Balanced Index Fund which consists of 60% Equities and 40% Bonds.

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