Only one power remains in US stock market | RRG chart

Segmentation by growth/value

Relative rotation graphs can be used to categorize the U.S. stock market into different sectors, which can help identify strengths or weaknesses.

The first RRG below shows the relationship between value and growth stocks.

The first important observation is that the growth tail is still on the right side of the graph inside the bearish quadrant, while the value tail is on the left side of the graph inside the improving quadrant. This indicates that the strength of growth stocks continues.

However, since mid-March, value stocks have seen a strong rally, with a strong decline in the tail, pushing them into the improving quadrant. Basically, the growth tail moved in the opposite direction into the negative attenuating quadrant.

However, the temporary counter-trend movement over the past three to four weeks appears to have ended and the preference has now shifted back to growth stocks.

Divide by size

Another way to segment the U.S. stock market is using size segments: large-cap, mid-cap, and small-cap.

The relative rotation graph below illustrates this analysis and the rotation of the various tails over the last 10 weeks.

The rotation of these size segments shows similar characteristics to what we saw in growth and value. Large-cap stocks were primarily located on the positive right side of the graph, while mid-cap and small-cap stocks were located on the negative left side of the RRG.

Here too, a countertrend movement was detected as small and medium-cap stocks turned to the positive direction due to losses in large-cap stocks from mid-March. Over the past few weeks, this counter-trend movement has come to an end and the outperformance for large-cap stocks has come into full swing.

A combination of style and size

By splitting the growth segment and the value segment into their respective size segments, we see a more granular rotation that combines both methods of segmenting the stock market in one RRG.

Now things are getting interesting. Of the six tails of the graph, only one is within the leading quadrant and moves in the positive RRG direction. All other stories are traveling in a negative direction.

The strongest negative rotations are found in small and mid-cap growth stocks. Both tails run almost straight, deeper into the trailing quadrant. A clear offset to the positive rotation of large-cap growth stocks.

The value tails of all size sectors have rolled over and are now all rotating back into the lagging quadrant after a brief period of improvement.

This rotation indicates that only one market segment is currently moving in the direction of positive RRG, with a large disparity in growth stocks.

This segment contains all of the biggest market capitalization names, but its very narrow base also keeps the risk in check.

By chart

If we simply plot the price charts of all of these six sectors below each other, we can see that only large-cap growth has surpassed the late-March peak where all the charts are aligned.

If we change the price bars to relative lines (relative to $DJUS), the situation becomes clearer.

The only remaining pocket of power

As always, the price is paid in terms of RRG. You should check the price chart before making your decision.

Despite the still visible upward trend, the negative divergence between price and RSI/PPO is building up, making us cautious. This type of setup usually occurs at the end of a trend and signals at least a pause or reversal in that trend.

The only caveat is that you need to get confirmation on the price chart in the form of a break in support, completion of a high formation, etc. And that hasn’t happened yet.

So the music is still playing, but the outside noise from people leaving the party is getting louder.

#StayAlert, have a nice weekend. –Julius