On this week’s RRG video, I shared my considerations concerning the present market circumstances. The sector rotation mannequin and present sector rotation, as we see it on the Relative Rotation Graph for US sectors, are sending us conflicting indicators. This mix continues to make me cautious about absolutely shopping for into the rally with new positions.

Being fully-invested is simply too dangerous in the intervening time (for me).

My present strategy is that the chance of being absolutely invested out there proper now, and even shopping for into it, is simply too excessive for my consolation. As an alternative, I counsel we deal with figuring out particular person shares or industries that current revenue alternatives for lengthy positions.

Dow Jones Industrials: Discovering the Proper Shares

I have never blogged about particular person shares for some time, particularly not concerning the members of the Dow Jones Industrials. Thus, I believed it might be helpful to look at the constituents of the Dow Jones Industrials Index to search out appropriate candidates for lengthy positions.

Outliers on the RRG

Whenever you take a look at the RRG holding the Dow Jones Industrial Shares, two actual outliers catch the attention. The primary is Intel (INTC), which is within the lagging quadrant and experiencing a major hiccup in relative momentum. The second outlier is 3M (MMM), situated within the weakening quadrant and quickly shedding relative momentum. If faraway from the equation, these two shares permit us to see a extra balanced distribution of shares throughout the varied quadrants.

Optimistic RRG Headings

My subsequent step is to toggle over all the person shares and spotlight these with a optimistic RRG heading between 0 and 90 levels. This means {that a} inventory is gaining relative power in opposition to the Dow Jones Industrials and is supported by optimistic momentum.

With this filter, we see two shares within the lagging quadrant on a optimistic heading: Amazon and Honeywell. 4 shares are contained in the bettering quadrant, and so they appear to be persevering with their enchancment: DIS, NKE, CRM, and V.

Concentrating on the Main Quadrant

The main quadrant has the next focus of shares on a optimistic heading, and that is the place I need to focus our consideration. After reviewing the person charts of those shares, I’ve recognized a number of price a more in-depth look and is likely to be thought of for including to a portfolio.

The Robust Performers: TRV, WMT, and AXP

Vacationers (TRV), Walmart (WMT), and American Categorical (AXP) are displaying very robust charts when it comes to worth and relative power. Nevertheless, they’ve had such a future that I would not suggest chasing them larger. The identical goes for American Categorical (AXP). For those who already maintain these shares, they’re an amazing “maintain,” however I would not provoke new positions.

The Prime Three Picks

Now, let’s speak concerning the three shares that stand out as potential additions to our portfolio.

Caterpillar (CAT)

Caterpillar’s worth has simply damaged above the earlier excessive at $380 and is consolidating. So long as it stays above $380, it has a great probability of constant its uptrend. The RRG traces have turned up and are each above 100, indicating a optimistic RRG heading.

Cisco (CSCO)

Cisco bottomed out round $44 and has climbed to its earlier excessive of round $56. It is now breaking above that resistance, which is a optimistic signal.

The following goal is the late December 2021 peak, just under $60. The relative power is choosing up once more, confirmed by each RRG traces pushing above the 100 degree. As soon as that barrier is taken out, plenty of upside potential for CSCO can be unlocked.

House Depot (HD)

House Depot has damaged above resistance round $390, shaped by two peaks in late 2021 and March 2024. The inventory confirms a brand new uptrend with the RRG traces pushing above 100. We may see vital upside potential when the uncooked RS line surpasses its earlier excessive from March 2024.

By measuring the peak of the vary from $260 to $390, we are able to venture a tough worth goal of $520 for House Depot to be reached inside the subsequent two years, so long as the assist round $390 holds.

Bear in mind, it isn’t about chasing the market; it is about making knowledgeable selections based mostly on strong evaluation.

#StayAlert and have an amazing weekend, –Julius