[RRG] Short Term Rotations Putting XLV and XLK Back In Favor

If we have been following how the S&P 500 sector are doing over the past week, we will notice that last month (November) have been a great month for investors and traders.

We have five sectors in the green over 5-day period, with communication services and consumer discretionary gaining more than 1.5% to close the week with +1.88% and 1.77% respectively.

And we are seeing Nvidia stock coming back yesterday (02 Dec) but can it continue to move higher towards $145?

So which sectors should we be watching this week?

If we looked at the sectors individually, we are seeing that Health Care (XLV) and Technology (XLK) are in the improving quadrant, these two sectors are going through a short term rotation.

Mainly investors are worried about what’s next for healthcare companies under Trump.

Donald Trump’s victory in the US presidential election has sent the overall stock market higher. But it’s been a different story for healthcare stocks.

Led by AbbVie ABBV and Eli Lilly’s LLY losses. The bulk of the declines came between 08 Nov and 19 Nov, Healthcare stocks recovered some of those losses on Wednesday. In addition, some industries escaped the carnage, most notably medical device makers and insurers.

This selloff extended losses healthcare stocks have seen since the end of August. But this will make these healthcare stocks undervalued and a potential discount to buy into.

The price of XLV is hovering above its former resistance (now support) level near $145. We are seeing sign of relative strength when we look at the raw RS-Line, XLV is currently running close to 100 and this show that there is room to run.

Earlier on 25 Nov, we saw the major indices rotating away from the megacap technology stocks, but we are seeing technology coming back from a change of 0.9% to 4.9% if we use RRG to look ahead on 5-day period.

Despite being inside the improving quadrant, XLK showed the strongest performance last week with a gain of 4.9%. Relative Rotation Graphs try to detect the best possible trend in these relative trends on the daily or the weekly time frame, then plot these on the RRG chart; these do not necessarily match with the actual (out-/under)performance.

The technology sector seems to be breaking out of the support at the start of this week which suggests an ongoing improvement in coming days. This could push the tail on the daily RRG further upward and help the weekly tail curl back up.

The RS-Momentum seems to be running its course and is ready to put in a high above the 100-line.

So based on what we are seeing for these two sectors currently in the improving quadrant, we could be seeing some potential, so I would be putting my attention this week goes to XLK and XLV for further improvement.

Appreciate if you could share your thoughts in the comment section whether you think XLV and XLK are two sectors we could watch this week.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.