RRG analysis of Assets, US Treasury Yield Curve, Investment Styles and Size, S&P 500 Sectors, and Dow Jones Industrials Average Components
After enduring one of the most volatile 2-week periods in recent memories we would like to update you on the technical conditions of the following: (1) Asset Class, (2) Investment Style, (3) S&P 500 Sectors, (4) US Fixed Income, and (5) Dow Jones Industrial Average stocks.
We will run RRG (relative rotation graph) charts to represent each security’s relative strength and momentum relative to other securities within a defined basket. The four quadrants on the RRG chart are as follows:
(1) Leading quadrant (green – upper right) represents securities with strong relative strength and strong momentum
(2) Weakening quadrant (yellow – lower right) shows securities with strong relative strength but weakening momentum
(3) Lagging quadrant (red – lower left) displays securities with weak relative strength and weak momentum
(4) Improving quadrant (blue – upper left) denotes securities with weak relative strength but improving momentum
Asset Class –
(Gold, US Dollar, US Treasury Bond, High Yield Corporate, Real Estate, Investment Grade Corporate, Total US stock Market, Commodity) – benchmark is VBINX or Vanguard Balanced Index
Based on the past 2-weeks Gold is the only asset class residing within the Leading quadrant. Gold as an asset class continues to trend higher indicating further outperformance over the near-to-medium term. Most of the US fixed income assets (i.e., US Treasury, High Yield Corporate, and Investment Grade Corporate), Real Estate, and US Dollar have moved into the Improving quadrant. This strongly suggests investors are favoring defensive/safe-haven assets, at least from a near-term perspective. US stocks (ITOT) has slipped into the Weakening quadrant. This suggests either a correction within a primary bull trend or a major top and the start of a relative underperformance cycle. Commodities (DJP) is reaching an extreme oversold condition. However, any oversold rallies suggest selling down this asset.
US Treasury Yield curve –
(20+ Year Treasury Bond, 10-20 Year Treasury Bond, 7-10 Year Treasury Bond, 3-7 Year Treasury Bond, 1-3 Year Treasury Bond, and 1-3 Month T-Bill) – benchmark is core US Treasury Bond (GOVT)
The long-end of the US Treasury Yield curve including 20+ Year Treasury Bond (TLT), 10-20 Year Treasury Bond (TLH), and 7-10 Year Treasury Bond (IEF) all reside within the Leading quadrant. This is in sharp contrast to the short-to-intermediate end of the US Treasury Yield curve including the 1-3-month T-Bill (BIL), 1-3 Year Treasury Bond (SHY), and 3-7 Year Treasury Bond (IEI). This wide discrepancy between the short-end and long-end of the US Treasury Yield curve is typically not sustainable as this warns of an inflection point.
Investment Styles and Size –
(US Large-Cap Growth, US Mid-Cap Growth, US Small-Cap Growth, US Large-Cap core, US Small-Cap Value, US Mid-Cap Value, US Large-Cap Value) – benchmark is Dow Jones US Index (DJUS)
Although US equities have corrected across the board over the past 2-weeks, the relative strength leaders remain heavily concentrated within the Large-Cap and Large-Cap Growth Indexes. The Small-to-Mid Cap and Large-cap Value Indexes continue to dramatically underperform their counterparts.
S&P 500 Sectors –
(S&P Technology, Communication Services, Real Estate, Consumer Staples, Consumer Discretionary, Utilities, Healthcare, Energy, Materials, Financial, and Industrial) – benchmark is SPY
Technology (XLK) and Communication Services (XLC) are the relative leaders as the continue to reside withing the Leading quadrant. XLC has recently entered the Leading quadrant. This group offer a better relative value call to the XLK which appears to be losing momentum. Real Estate (XLRE) and Utilities (XLU) have shown the greatest improvements. Consumer Staples (XLP) has just moved into the Improving quadrant. Consumer Discretionary (XLY) is confined to the middle of the Improving quadrant. Healthcare (XLV) is the only S&P sector residing withing the Weakening quadrant. This warns of the potential for a normal correction within a primary uptrend. Financials (XLF), Energy (XLE), Materials (XLB), and Industrials (XLI) continue to reside within the Lagging
Dow Jones Industrial Average (INDU) –
(30-Dow Jones components – MSFT, INTC, V, JNJ, IBM, KO, AXP, TRV, CSCO, MCD, HD, PFE, AAPL, UNH, JPM, NKE, GS, UTX, BA, XOM, WBA, CVX, DOW, DIS, WMT, MRK, VZ, CAT, MMM, and PG) – benchmark is INDU
The relative strength leaders as defined by INDU stock residing within the Leading and Improving quadrants have been skewed toward Technology names (MSFT, INTC, V, IBM, and CSCO) and Consumer Staples stocks (KO and MCD). Relative strength laggards consist of mostly Energy names (XOM and CVX) and Industrials (BA, MMM, and CAT).