After which ….. abruptly….. issues are heating up. Numerous (draw back) market motion prior to now week.

Let’s have a look at what sector rotation and RRGs can inform us.

The RRG on the prime is a each day RRG, as current value motion has considerably impacted near-term rotations.

The primary takeaway is the concentrated risk-off rotation, with Know-how and Shopper Discretionary rotating into the lagging quadrant. To offset the nose-dives in these two sectors, many others got here floating to the floor on a relative foundation.

Utes Lead, Tech Lags

Trying on the value efficiency during the last 5 days (snapshot Friday, 8/2, 1:30 pm ET), we see the defensive sectors rising to the highest of the desk, whereas the extra offensive sectors are discovered on the backside. Buyers are flocking to the protected havens of Utilities, Shopper Staples, and Healthcare. The odd ones are Actual Property and Communication companies (META is definitely serving to right here).

The actual harm for the cap-weighted S&P 500 comes from Shopper Discretionary and Know-how.

Equal Weight Sectors Paint a Extra Practical Image

The RRG displaying the equal equal-weight sectors paints a reasonably clear image. Three sectors are taking pictures deeper into the lagging quadrant: Shopper Discretionary, Vitality, and Know-how. Utilities and Healthcare are making the other transfer into main. The remaining sectors are combined across the 100 degree on the JdK RS-Momentum scale.

This paints a extra sensible image on the sector degree, which is much less impacted by mega-cap shares, nevertheless it confirms the rotation we additionally see within the cap-weighted sectors. RISK OFF.

Is the BIG ROTATION Over?

For a couple of weeks, it was all in regards to the “BIG ROTATION,” the transfer from massive caps into small caps.

I mentioned this two weeks in the past in this video for StockChartsTV and requested whether or not that market phase can be large and robust sufficient to forestall the S&P 500 from falling.

At the moment, the rotation was clearly seen, and SPY was holding up above assist close to 550, so there was no large “outflow” of cash from the S&P 500.

When the market strikes decrease, by definition, cash is flowing out of it. When the market strikes greater, new cash is put into shares. When (sector) rotation takes place whereas the market stays steady, the cash is moved round between sectors.

At first, buyers pulled their cash from mega-cap and large-cap shares and moved it to different sectors and segments (small caps). However now, cash is definitely leaving the market.

Apparently, more cash leaving the market appears to return from the small-cap phase.

Giant and Small Each Go Down, however At a Completely different Tempo

The RRG exhibits the ratios between cap-weighted large-cap sectors and cap-weighted small-cap sectors. It makes use of $ONE because the benchmark to visualise the motion between large- and small-cap sectors.

All tails are on the left-hand aspect of the graph, indicating that these ratios are in downtrends, that means massive caps are underperforming small caps. However the enchancment during the last 5 days is quickly turning into seen. All these tails are curling again up, indicating that the downtrends (that means a choice for small caps over massive caps) are beginning to degree off and enhancing.

The chart above exhibits this ratio for XLK:PSCT together with an RSI(9). The sharp transfer decrease from the 4.979 peak has come to relaxation close to the growing assist line across the ranges of the earlier lows whereas the RSI is executing a optimistic divergence.

Just about all of those ratios are displaying related charts.

Therefore, on a relative foundation, large-cap shares appear to be making a comeback, however solely as a result of they’re dropping much less quick than the small-caps.

In actuality, small-cap know-how shares are dropping like a stone.

And so are large-cap know-how shares, solely rather less.

If you end up a long-only investor with a capital preservation benchmark, do not be fooled by RRG tails which can be turning upward or rotating into the main quadrant.

The place all of it comes collectively.

This chart was snapped Friday, 8/2, at 2:30 p.m. ET. The bounce from wherever it should come may be very seemingly to provide us extra clues in regards to the close to future. I might not be stunned to see some “Wham Bam, Thank You, Ma’am” quick masking, taking the market a bit up from its lows.

What occurs from there can be our information going into subsequent week.

The world between 533 and 537.50 will seemingly begin to function overhead resistance, whereas the way in which down is now open to the 517.50-520 space.

#StayAlert and have a fantastic weekend. –Julius