SPY receives support but financials are strong | RRG chart

happy new year!!! (I think it’s still allowed on the 5th day..)

Before we dive into sector rotations, let’s kick off the new year with a quick look at the state of SPY.

Is SPY hitting the pause button?

As you know, I mostly use weekly charts, but the chart above is a daily chart of SPY. Because I want to highlight the fact that the market is currently holding, or testing if you will, a short-term support level around 467. -468.

Looking at the hourly chart, one could argue that it is breaking support areas. The final ruling will be made clear by the end of the day today (Friday the 5th).

A negative divergence penciled in on the RSI in the chart above indicates a pause or setback is imminent.

If this breakthrough actually materializes, I see support in the 455 area as the first possible target. As support holds and we bounce, we may see a small H&S formation. Either way, the fact that all of this is happening just above high overhead resistance around 480 may limit upside potential in the near term.

This is very evident in the weekly chart above, where the horizontal resistance that occurred in early 2022 and the rising resistance line that marks the upper boundary of the channel combine to create a double resistance.

Overall, it appears that at least a minor disruption or pause to digest the recent rally is imminent.

sector rotation

As can be seen in the RRG above, long-term sector rotations still favor a positive outlook for SPY. three defense divisions; Necessities, utilities and healthcare are on the left side of the graph and move in the direction of negative RRG. This is a cycle that typically characterizes bull markets, as investors prefer aggressive sectors.

A notable rotation is the opposing movement of real estate (XLRE) and energy (XLE). But the sector I want to highlight here is finance (XLF).

In the weekly RRG, the XLF tail is inside the leading quadrant and pointing further towards the strong RRG.

On the daily chart, the XLF tail inside the bearish quadrant has already curled back and is now heading back into the leading quadrant. This causes the daily rotation to re-synchronize with the weekly rotation. This is generally a strong signal for further improvement for SPY.

finance

To find individual stocks within a financial sector, you can import a predefined RRG with all members of the XLF.

A quick way to identify industries within the financial sector that have potentially interesting stocks is to sort the table under RRG in the “Industry” column (just click on the top of the column) and look at the quadrant colors. The table above shows that all banks are within the leading quadrant. When you click on the line of an individual stock, the tail of the RRG will be highlighted. You can use the arrows (up/DN) to explore individual tails to better process them and find names to display on the price chart.

#Be on guard, –Julius