In this week’s episode of Sector Highlight, I checked out market breadth utilizing two totally different variations of Relative Rotation Graphs. Following that present, I acquired an electronic mail from a person reminding me of one other set of market breadth indices that we hold for sectors: the BullishPercent indices.

You’ll find all tickers for which we calculate these numbers right here. These indices rely the variety of shares in an index that’s on a Level & Determine (P&F) purchase sign, and convert them to a share for comparability.

Be Cautious With Vary Sure Metrics

As a facet word, these knowledge units have the identical “drawback” as the proportion of shares above their n-day exponential shifting common (EMA). After they keep at an elevated or depressed worth for a extra prolonged interval, the momentum will falter and go to zero, and, finally, so will the “development.” One thing that is still at 90 or 100 for an prolonged interval might be a flat line that won’t be picked up as a “development.”

So everytime you use these kinds of knowledge units on RRGs, please hold that in thoughts. They’re, nevertheless, excellent at choosing up the beginning of a transfer, as they’ll very quickly transfer up or down from these excessive ranges, backed by stable momentum up or down. With that in thoughts, these kinds of universes, plotted on a Relative Rotation Graph, might help you decide up strikes of their early phases.

The RRG on the high of the article reveals the RRG utilizing the BullishPercent values for the 11 S&P sectors whereas utilizing the identical metric for your complete S&P 500 because the benchmark.

Aligning BullishPercent Tails and Worth-Primarily based Tails

On this RRG, there are six sectors displaying a tail that’s at a constructive RRG-Heading. They’re highlighted in inexperienced ovals.

The RRG above reveals the rotation for the sectors (worth primarily based). I’ve circled the identical sectors which have a constructive RRG-Heading within the first RRG.

XLC and $BPTELE are each contained in the enhancing quadrant and displaying lengthy (highly effective) tails; breadth appears to be supporting an extra (relative) enchancment for Communication Providers.

XLRE is “inside” enhancing, however $BPCLRE is deep contained in the main quadrant, shifting additional proper at steady relative momentum. That’s positively supportive of additional enchancment within the Actual Property sector.

XLY and $BPDIC are each contained in the lagging quadrant, however they’re additionally shifting at a constructive RRG-Heading. Although XLY is deep inside lagging and on the lowest RS-Ratio studying within the universe, this mixture of each tails shifting at a powerful heading might be an early indication of extra enchancment forward.

XLP is contained in the main quadrant, however has lately rolled over and is now on the verge of crossing into weakening. Its BullishPercent equal $BPSTAP is inside enhancing, however at a constructive heading, indicating that, beneath the hood, participation on this sector is enhancing.

XLV has simply crossed into weakening, whereas $BPHEAL already accomplished a flip again up in direction of and into main after a rotation by weakening. This might be an fascinating mixture and setup to see if $BPHEAL certainly leads the flip for XLV.

Lastly, there may be XLE inside weakening at an extended tail, which signifies a speedy decline of relative momentum. The excessive RS-Ratio studying for XLE signifies that the sector remains to be in a relative uptrend, however at the moment going by a correction. $BPENER, deep inside lagging however turning again up, might be the primary signal for a beginning enchancment that would assist the XLE tail flip again up whereas inside weakening.

I discovered it fascinating to see that every one sectors which have their BP tails in a constructive heading have worth tails which might be both on the left-hand facet of the RRG on a constructive heading, or on the right-hand facet of the graph going by a lack of relative momentum, however with loads of room to finish that rotation on the right-hand facet of the graph.

How Does This Influence the S&P 500 Index?

As I defined in Sector Highlight, not all sector breadth metrics are signaling energy. Nevertheless, those which might be signaling energy have managed to push the S&P 500 index above its falling trendline which saved the market beneath stress since early 2022. That is definitely a constructive piece of the puzzle.

The large query is, and might be in coming days, “will it’s sufficient?”

Everyone knows that breaks of diagonal trendlines are good to know however are solely typically dependable. The true proof would be the horizontal overhead resistance ranges provided by outdated peaks; before everything, the world between 410-415. As soon as damaged, the subsequent degree round 430 might be seen as the subsequent goal.

It seems like we’ll be in for a really fascinating week, perhaps two or three, to return!

#StayAlert and have an important weekend. –Julius