By now its apparent to most that Technology is leading this market. That’s a nice factoid but it doesn’t help us much when it comes to understanding where the strength and momentum is coming from within the sector. What names are leading? Which ones are lagging? Is there a rotation occurring within tech? Where should I look for out-performance in the coming weeks?
Drilling down on Tech rotation
I took all the names names within XLK and did a 5 week relative rotation study. The tables below group the names into 4 quadrants of the sector rotation graph.
- Leading (Green) – strong relative strength and strong momentum
- Weakening (Yellow) – strong relative strength but weakening momentum
- Lagging (Red) – weak relative strength and weak momentum
- Improving (Blue) – weak relative strength but improving momentum
Weakening and Lagging Quadrants
Relative Rotation can be a little confusing at times. The relative rotation study looks at relative strength and momentum between the names in the study, not price itself. So in essence, its giving you a peek at performance from a relative strength and momentum standpoint.
Using the study
I like to buy stocks with strong relative strength and momentum behind them. If push comes to shove, I’ll choose increasing momentum over relative strength. So I use the study to narrow my stock selection search universe. I will generally start hunting in the Leading or Improving quadrant. I still need to go to the charts to find prime set ups but it makes the process more productive in my opinion.
Happy Hunting and Good Trading
Hope it helps!!