On the finish of final yr, I wrote a weblog article concerning the relationship between Massive-Cap and Equal-Weight sectors. It concerned plotting the ratios of the Massive-Cap sector ETFs towards the Equal Weight sector ETFs.

You’ll find that article right here in case you missed it.

As we speak, I need to broaden that method to the Massive-Cap vs Small-Cap debate and convey the extent of element right down to a direct comparability at sector stage.

Massive-Cap Rotation

Above is probably the most broadly used Relative Rotation Graph for US sectors.

Observations from this RRG:

• Power quickly dropping relative energy
• Actual property, Financials, and Expertise stay robust contained in the main quadrant regardless of a slight lack of relative momentum.
• Communication Companies leveling off on JdK RS-Momentum contained in the weakening quadrant and presumably aligning up for a rotation again as much as main.
• Industrials and Client Discretionary proceed to enhance, slowly, contained in the bettering quadrant, however they’re at a optimistic RRG-Heading (+)
• Supplies is rotating again down and crossing over into lagging
• Client Staples and Utilities are turning again down towards the lagging quadrant whereas remaining at very low JdK RS-Ratio readings.
• Well being Care remains to be contained in the lagging quadrant however exhibits a pointy hook again up. It is in its early levels, however enchancment is there.

Small-Cap Rotation

That is the Small-Cap equal RRG.

Please notice that Actual-Property is included within the Financials small-cap ETF; PSCF and Communication Companies are included in Utilities.

To get a greater deal with on the rotations, I’ve switched off the lengthy, disconnected tail for the vitality sector (PSCE) within the graph under because it distorts the picture.

The primary observations from this RRG are:

• Client Discretionary, Financials, and Supplies are contained in the main quadrant, however solely Supplies is at a optimistic RRG-Heading. Discretionary and Financials have already began to lose relative momentum.
• The Industrials sector stays at an elevated RS-Ratio studying however has rotated into the weakening quadrant (quickly?)
• Utilities exhibit a robust rotation from bettering again to lagging and is doubtlessly the weakest (small-cap) sector.
• Expertise and Client Staples are each contained in the lagging quadrant. Expertise has proven substantial enchancment over the past 4 weeks, whereas Client Staples solely hooked again up sharply final week.
• Well being care is the one sector bettering, however the highest studying on the JdK RS-Momentum scale is promising.

By evaluating these two Relative Rotation Graphs, you possibly can already perceive how rotations happen in these two universes.

Nevertheless, each universes are plotted towards their normal benchmarks. Massive-Cap is plotted towards SPY, and the Small-Cap universe is plotted towards $SML.

Massive-Cap vs Small-Cap at Sector Degree

To get a extra granular studying on the relative performances of every large-cap sector vis-a-vis its small-cap counterpart, I created a universe of ratios the place every image is the ratio of the large-cap sector to the small-cap sector.

*Click on on the picture to open a dwell RRG on the location. It can save you it as a bookmark to your browser by clicking the permalink on the backside of the web page.

Because the universe consists of ratio symbols, we have to alter the benchmark to $ONE so the RRG will present us absolutely the tendencies in these ratios.

It’s instantly apparent that the majority of those tails are pointing/rotating towards or already contained in the lagging quadrant.

Expertise and Well being care are nonetheless at respectable ranges within the weakening quadrant, offering them with sufficient room to show again up with out hitting the lagging quadrant. Utilities have made a primary try to try this.

Contained in the lagging quadrant, Client Discretionary is beginning to choose up some relative momentum, however it’s in its early levels.

All in all, which means that the rotation out of large-cap is happening in virtually all sectors. The one sector the place buyers ought to clearly choose large-cap shares is Power, because the XLE:PSCE tail is pushing additional into the main quadrant.

#StayAlert, –Julius