KEY
TAKEAWAYS
- The Shopper Discretionary sector has underperformed the Shopper Staples sector since February, indicating defensive positioning for traders.
- The Relative Rotation Graphs (RRG) present a transparent rotation from “belongings you need” to “belongings you want” as traders worry weakening financial circumstances.
- We stay targeted on charts nonetheless exhibiting robust technical traits, targeted in Shopper Staples, Industrials, and Supplies.
Reflecting on the value motion over this shortened vacation week, I am struck by how the management traits have probably not modified an excessive amount of. We have noticed bombed-out market breadth indicators, and the S&P 500 stays clearly under its 200-day transferring common regardless of a powerful upside swing off the early April market low.
However how a lot because the management of this market modified during the last couple weeks? I might argue that circumstances stay pretty constant over that interval, and are nonetheless not overwhelmingly bullish.
Defensive Sectors Nonetheless Outperforming Offense
This is considered one of my favourite charts for analyzing offense vs. protection, a chart that holds a spot of honor on my Market Misbehavior LIVE ChartList. We’re evaluating the Shopper Discretionary and Shopper Staples utilizing each cap-weighted and equal-weighted ETFs.
When the ratios are going increased, traders are favoring “belongings you need” over “belongings you want”, which means optimism for financial development. When the ratios slope decrease, that implies extra defensive positioning as traders are skeptical of development prospects.
We will see that the cap-weighted model of this ratio made a peak in January, whereas the equal-weighted model made its personal prime in February. Each ratios have been in a reasonably constant downtrend of decrease highs and decrease lows, even via final week’s sudden spike on tariff coverage adjustments.
How bullish do I need to be when these ratios are sloping decrease? Typically talking, I’ve discovered that till traders begin believing within the upside potential of Shopper Discretionary over the relative protection of Shopper Staples, it is best to stay on the sidelines.
Utilizing the RRG to Visualize Offense vs. Protection
Whereas I typically consult with relative power ratios of sector ETFs vs. the S&P 500 index, I additionally take pleasure in leveraging the ability of Relative Rotation Graphs (RRG®) to observe a sequence of relative power ratios in a single easy however highly effective visualization.
Right here, I am exhibiting the 11 S&P 500 financial sectors relative to the S&P 500, and I am highlighting Shopper Discretionary and Shopper Staples to observe their relative positions. Should you click on “Animate” for this visualization, you may see that towards the top of 2024, offense was clearly outperforming protection. The XLY was within the Main quadrant, the XLP was within the Lagging quadrant, and the rotations steered a traditional bull market configuration.
Quick-forward to February and March and you may see how Shopper Discretionary rotated into the Weakening after which Lagging quadrant. In the meantime, Shopper Staples strengthened throughout that very same interval. At this level, the RRG is telling me protection over offense, in a traditional bearish configuration.
Sticking With Groceries, Weapons, and Gold
So, given the bearish management configuration regardless of a sudden bounce of the April market low, the place can we discover potential alternatives? I am going to spotlight three concepts that I am going to summarize as “Groceries, Weapons, and Gold.”
Enjoying off the “belongings you want” theme implied above, grocery retailer Kroger Co. (KR) has managed to pound out a reasonably constant sample of upper highs and better lows. With bettering momentum and a brand new 12-month relative excessive this week, it is a chart persevering with in a transparent uptrend regardless of broad market weak spot. By the way in which, KR was one of many Prime Ten Charts for April 2025 I introduced with Grayson Roze!
Protection shares like Northrop Grumman Corp. (NOC) have skilled an upside resurgence given geopolitical instability in 2025. From a technical perspective, I like how charts like NOC have rallied since mid-February, whereas most shares, in addition to our fairness benchmarks, have been trending decrease! There is a vital resistance stage to beat round $550, however a confirmed break increased might open the door to additional beneficial properties.
Gold has skilled an unimaginable run thus far in 2025, ending the week up 26% for the yr in comparison with the S&P 500’s 10% loss over the identical interval. Just like the chart of NOC, Newmont Company (NEM) is addressing a key resistance stage from a serious excessive in October 2024. However, thus far in 2025, NEM has been scoring increased highs and better lows, probably constructing momentum for a break to a brand new all-time excessive.
It may be tremendous tempting to contemplate the April low as “the underside” and go all-in on development shares and offensive performs. However, given the shortage of management rotation in April, I am inclined to stay with charts that stay in robust uptrends throughout unsure instances.
RR#6,
Dave
P.S. Able to improve your funding course of? Try my free behavioral investing course!
David Keller, CMT
President and Chief Strategist
Sierra Alpha Analysis LLC
Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.
The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer and don’t in any approach symbolize the views or opinions of another particular person or entity.
David Keller, CMT is President and Chief Strategist at Sierra Alpha Analysis LLC, the place he helps lively traders make higher choices utilizing behavioral finance and technical evaluation. Dave is a CNBC Contributor, and he recaps market exercise and interviews main specialists on his “Market Misbehavior” YouTube channel. A former President of the CMT Affiliation, Dave can also be a member of the Technical Securities Analysts Affiliation San Francisco and the Worldwide Federation of Technical Analysts. He was previously a Managing Director of Analysis at Constancy Investments, the place he managed the famend Constancy Chart Room, and Chief Market Strategist at StockCharts, persevering with the work of legendary technical analyst John Murphy.
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