These Two Relationships Point To Ongoing Strength For Stocks

The RRG above shows the rotations for two relationships that can help you get a handle for the market as a whole:

  • Growth vs Value : Generally, when growth stocks are doing well and outperforming value that is good for the market. While, vice versa, when value stocks are outperforming their growth counter parts, that points to weakness or a risk-off attitude in markets.
  • Staples vs Discretionary : When Discretionary beats Staples that is usually a good sign for the market and v.v. when Staples outperform Discretionary that indicates risk-off.

In the RRG above I have plotted the tails for XLY (Discretionary) and XLP (Staples), together with IVE (Value) and IVW (Growth).

If we start with growth/value you can see that value, inside leading, is to the right of growth, in lagging. But the direction of their paths is suggesting a return vor IVW into leading and a drop into weakening and possibly lagging for value.

The current positioning for thos tails comes after a rotation that was clearly in favor for value over growth but now seems to be coming to an end and change back to favoring growth over value.

Staples vs Discretionary

The tail for XLP is the longest on the chart and pushing further and further into the lagging quadrant. It has lost some of its downward momentum recently but the weakness is still clearly visible.

Discretionary on the other hand is positioned inside weakening but gaining on the JdK RS-Momentum scale for weeks already and now about to move into the leading quadrant again. This will re-confirm the strength of the Discretionary sector over Staples.

With both these gauges on a positive reading it’s hard to be bearish for the market (SPY).

As long as this setup holds, declines are buying opportunities.

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