Wed. Oct 27th, 2021

First of all, I’m sorry I canceled today’s episode Highlights of the sector. I’ve been battling a nasty cough and a sore throat for a week now that I don’t have much voice left, and things haven’t improved enough to make a decent presentation / talk for 30 minutes. The test doesn’t say COVID, but my body disagrees a bit … I hope to return to full performance next week.

In this article, I want to review the long / short baskets of RRG, which has been waiting for a long time. Too bad, as not updating it enough has hurt performance. So I’ll pick up the pieces, reset them, and start again from where we are right now.

After the last update, the composition of the two baskets is as follows:

  • LONG: EWC, EXR, IP, IVE
  • SHORT: AWK, COST, ETR, IVW, MTD, PG, XLY, SWKS

LONG

EXR

EXR still holds up well, with no reason to remove it from the long side.

WM

WM has just parted ways with the small price consolidation pattern and the old resistance is now supported. This should help the relative strength and SPY move more and eliminate the resistance of the head. This can also be left in the basket.

WFC

The WFC bounced the resistance slightly to the fall and remains above the horizontal support. Still, the line of relative strength has trouble moving forward. With the general weakness of the financial sector in general, I will remove the WFC from the basket.

VAT

IVE left the upward channel of the price chart and also fell below the support of the RS chart, which pushes both RRG lines below 100 and IVE in the backward quadrant of the RRG. There is no excuse to keep VAT on the long side.

IP

IP is a difficult call. The old resistance remains as support for the price chart along with the rising support line. On the other hand, there appear to be a number of lower highs and lows. From a relative point of view, the RS line retreats below its previous resistance level, while the RRG lines push the tail towards the quadrant which weakens into a negative head.

Removal of IP from long basket.

CRM

In recent weeks, CRM did what it wanted to do when it was for the long basket, surpassing the S&P 500. In the price chart, CRM remains above the old line of drop resistance. Taking out $ 250 resistance would be a good shot.

As long as the RS-Line remains above the horizontal support and the RRG lines continue to rise, there is no reason to remove CRM from the basket.

PSCD

This is an excellent example of a position that worked very well and turned for lack of attention. A few weeks ago, the price fell below some rising support levels and at the same time pulled out some previous lows. The relative strength also fell below its rising support line a few weeks ago and is pushing the PSCD queue up and almost towards the backward quadrant.

This one has to leave, very late.

EWC

EWC started very well, but stayed too long in the basket. Then, two weeks ago, the price broke below the rising support line, while it had already withdrawn its previous low a little earlier.

Something similar happens with relative strength, which causes the tail for EWC to point to the backward quadrant as it weakens inward, but close to 100 on the RS-Ratio scale.

EWC is also removed.


SHORT

ETR

ETR bounced resistance in both the price chart and the RS chart. This combination has lowered the two RRG lines and put the queue on the backward quadrant in a negative RRG heading. It’s definitely worth keeping it on the short side.

XLY

XLY stood on the short side as a counterpart to PSCD’s long position in an attempt to benefit from improved small-cap discretionary shares compared to its large-cap counterparties. This worked for a while, but then the XLY started to deteriorate even faster.

It’s especially the RS chart that helps keep XLY in the short basket. The series of lowest highs and lows remains intact and causes a short tail in the RRG, which indicates a stable trend: in this case, it goes down against SPY.

Given the position of the queue in the weekly RRG and the weakness that already appears in XLY’s daily rotation, I will keep XLY on the short side.

IVW

IVW was the counterpart of IVE on the long side and should have been eliminated along with IVW. This pair in favor of value over growth stocks has been in the baskets for a long time and has added very well to performance, but should have closed when the turnover turned back in favor of growth. As you can see, this happened quite a while ago and now IVW is even re-entering the main quadrant.

This one has to go.

AWK

In the price chart, AWK completed a training that can be labeled as a H&S continuation pattern (+ bullish). Removing resistors near $ 170 would confirm this view. On the relative chart, AWK is detached from a small background formation, suggesting a relative improvement.

All in all, enough reasons to take AWK out of the short basket.

PG

PG broke resistance on the price chart, which should allow stocks to go up, or at least not to fall sharply. The decrease in relative strength has slowed, causing the RRG lines to stabilize and move slowly higher up. With the queue within the quadrant improving and constantly heading up the RS-Ratio scale, I feel the odds favor PG improving even more against SPY. This ensures the elimination of the short side.

MTD

BAT kept too short in the short basket. It has broken resistance levels in price and relative strength and is now well placed within the main quadrant. There is no reason to leave this short.

COST

COST displays an image similar to BAT. Breaking higher both the price and the relative charts, which put the queue right inside the main quadrant, is reason enough to take it out of the short basket.

SWKS

SWKS has been heading against me in recent weeks, but has now failed to break the horizontal resistance around 195, which coincides with the level of the old rising support line, which now acts as resistance.

The RS-Line is also bouncing against the old growing support of the relative chart, which broke up weeks ago. The rate of the lowest highs and the lowest lows is still played out on the relative chart. Along with strong price resistance and low position on the RS-Ratio scale, I will keep SWKS on the short side for now.


This leaves us with the following baskets:

LONG: EXR, WM, CRM

SHORT: ETR, XLY, SWKS

Performance is no longer as good as before. So, from here we start looking for new additions.

#StaySafe, –Julius


Julius de Kempenaer
Senior technical analyst, StockCharts.com
Creator, Graphs of relative rotation
Founder, RRG Research
Host of: Focus of the sector

Please look for my handles for social media channels below the Bio below.

Comments, comments or questions are welcome at [email protected]. I cannot promise to respond to each and every one of the messages, but I will certainly read them and, where reasonably possible, use the comments and comments or answer questions.

To discuss RRG with me on SCAN, tag me with the handle Julius_RRG.

RRG, Relative Rotation Graphs, JdK RS-Ratio and JdK RS-Momentum are registered trademarks of RRG Research.

Julius de Kempenaer

About the author:
Julius de Kempenaer is the creator of Relative Rotation Graphs ™. This unique method for visualizing relative strength within a stock universe was first launched at Bloomberg Professional Services Terminals in January 2011 and published on StockCharts.com in July 2014. After graduating at the Royal Dutch Military Academy, Julius served in the Netherlands. Air Force in various ranks of officers. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers). Learn more

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