Daily vs Weekly Relative Rotation Graphs®

by Jan 20, 2018All Articles, Technical Analysis, Education

As with normal bar charts, tail movements on a weekly RRG can look a lot different than tail movements on a daily RRG. For example, the current daily RRG below shows the SPDR Consumer Staples ETF ($XLP) in the lagging quadrant and heading further away. In contrast, the weekly RRG shows the sector rotating in the opposite direction: from the lagging quadrant and moving in to the Improving quadrant. How can this be?

The chosen timeframe effects RRGs just like regular bar charts. In the example below, the left chart shows two months of daily data for the S&P 500, and the two-month trend is down. The chart on the right shows one year of weekly data and the overall trend is clearly up. The yellow shaded area highlights the two months shown on the daily chart to put this decline into perspective. Clearly, this is a short-term downtrend (pullback) within a long-term uptrend.

The chosen timeframe effects RRGs the same way. A sector moving into the Improving quadrant on the weekly timeframe, like the Consumer Discretionary sector in the RRG above, can be in the Lagging quadrant on the daily timeframe as the sector is going through a short-term negative rotation. This short-term rotation, however, is not powerful enough – yet! – to influence the rotation on the weekly RRG.

This can be clarified a bit more by looking at the RRG Lines tool on the charts, which shows the RS-Ratio and RS-Momentum values. The first chart shows the weekly RS-Ratio and RS-Momentum for $XLP, which correspond to the weekly RRG plot (i.e. when they are both above 100 they are in the Leading quadrant and the bars are coloured green, or red when they are both below 100). The second chart shows daily RS-Ratio and RS-Momentum, which correspond to the daily RRG plot. Notice how the weekly indicators show a recent uptrend in relative performance as the RRG lines are sloping up following a period of decline, thus placing $XLP in the Improving quadrant (blue bars).

The daily indicators, on the other hand, are both sloping down below 100, and is therefore in the Lagging quadrant with red price bars.

Assuming that weekly rotations are stronger than daily, and that a rotation will follow its normal clockwise course, one would expect the negative rotation on the daily timeframe to be temporary in nature. In a normal short-term daily rotation, the sector would move through the Lagging quadrant, cross into Improving quadrant and then Leading, thus keeping it inside the Improving quadrant on the weekly timeframe – even pulling it closer to Leading. In other words, the daily move is a short-term “hiccup” within an otherwise improving relative trend on the weekly. 

As with all aspects of technical analysis, it is a very good habit to study different timeframes to get a complete picture. The Consumer Discretionary sector is clearly deep inside the Lagging quadrant on the daily RRG and moving further into the red, but not enough to stop it moving through Improving on the weekly RRG (although it is starting to change direction).

 

Identifying opportunities

 

Of course, looking at daily trends is a great way to find potential changes in longer-term weekly trends.

For clients with the full Optuma RRG module, you can use the JDKRS() function in the scripting language to create scans or Watchlist columns based on any RRG measurement – including the quadrant, heading and distance from the benchmark – in different timeframes.

In the example below, the watchlist contains the members of the S&P500 index (opened via the Optuma Symbol List), with the columns grouped by daily quadrants within the weekly quadrant which allows us to easily identify where a stock sits within each timeframe.

The formula used for the weekly quadrant column: JDKRS(Week(PERIODAMOUNT=1)).Quadrant
The daily quadrant formula: JDKRS().Quadrant (note that because the timeframe of the watchlist in the image below is set to 1 Day all the formulas will be based on that timeframe by default so there’s no need for it to be specified in the daily formula, only the weekly).

At the time of writing there were 167 companies in the weekly Lagging quadrant, broken down in to the following daily quadrants:

  • Leading: 45
  • Weakening: 6
  • Lagging: 74
  • Improving: 42

It’s safe to say that unless you’re looking to go short, you probably want to avoid those 74 that are Lagging on both a daily and weekly basis, but you may want to keep your eye on the 45 that are Leading, as they may be the ones that will cross in to the weekly Improving quadrant first, identifying a possible change in relative trend. As always, time will tell!

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Julius de Kempenaer

Julius de Kempenaer

Director, RRG Research

Julius is the creator of Relative Rotation Graphs® and the founder and director of RRG research and based in Amsterdam, the Netherlands.
He graduated from the Dutch Royal Military Academy (KMA) in 1986. In 1990 he left the air force as a captain and entered the financial industry as a portfolio manager for Equity & Law (now part of AXA investment managers).
In 1992 Julius moved to IRIS/Robeco as a buy-side quant/technical analyst until 1997 when RABObank acquired Robeco. He then moved to RABObank International as head of technical analysis on the trading floor in Utrecht. Until June 2007 he served in a similar role on the trading floor of Kempen & Co. in Amsterdam.
From 2007 to mid 2014 Julius was the director of quantitative strategy at Taler Asset Management Ltd. where he co-authored various asset allocation strategies that have been successfully implemented in discretionary managed accounts as well as a UCITS investment fund.
He left Taler in 2014 to be able to solely focus on the growth of RRG research primarily through partnerships with professional data vendors and software developers to make RRGs® available to a wider audience and provide relative strength based research to professional investors and professional entities (websites, brokers, asset managers etc) that serve retail clients.

Darren Hawkins, MSTA

Darren Hawkins, MSTA

Senior Software Specialist at Optuma

Darren is the senior Software Specialist at Optuma. He joined the company in 2009 after attending an introductory technical analysis course. Darren now instructs users all over the world, from experienced Wall Street traders and professional money managers to individual traders drawing their first trendlines.

Darren grew up in the UK and attended college in the USA where he earned a BA in Economics from St Mary's College of Maryland. He went on to spend a few years working at the Nasdaq Stock Market in Washington DC. Going on to live and work in Australia, the US and currently the UK, Darren has a broad understanding of the individual needs of traders, portfolio managers and investors utilising a wide range of methodologies.

In 2014 Darren passed the UK-based Society of Technical Analysts diploma course, and when not looking at charts he keeps a keen eye on England's cricket team - especially if they are playing against Australia. He lives in the Essex countryside in England, with wife Wendy and their labrador, Gabba.

1 Comment

  1. Avatar

    Thank you for the detailed post on RRG Timeframes. Very good information.

    Reply

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