• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Leadership Rotation Could Confirm Corrective Phase
Stock

Leadership Rotation Could Confirm Corrective Phase

by May 30, 2025
by May 30, 2025 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

There’s no denying that the equity markets have taken on a decisively different look and feel in recent weeks.  We’ve compared the charts of the S&P 500 and Nasdaq 100, as well as leading growth stocks like Nvidia, to an airplane experiencing a “power-on stall”.  Basically, the primary uptrend has been paused, but it’s unclear whether we’ll resume the uptrend after a brief corrective period.

I stand by my previous comments that the 200-day moving average, as well as the price gap formed in early May, remains the most important “line in the sand” for this market.  And as long as the S&P 500 and other leading names remain above their 200-day moving averages, then equities are still in decent shape.

One of the key features of this market off the early April has been the dominance of traditionally “offensive” sectors such as technology and consumer discretionary.  But are these leading sectors maintaining their leadership role as we progress through the spring months into the summer?

Leading Sectors Off the April Low Starting to Falter

My Market Misbehavior LIVE ChartList includes a series of relative strength charts showing the performance of key sectors versus the S&P 500.  When these lines are trending higher, the sector is outperforming the benchmark.  Generally speaking, I’d prefer to own stocks where the relative strength line is trending higher, as that confirms I’m doing better than a passive investment strategy!

Only three sectors have outperformed the S&P 500 index over the last month: technology, industrials, and consumer discretionary.  Notice how two of those sectors, technology and consumer discretionary, are seeing a downturn in relative strength over the last week?  It still may be early to declare a full leadership rotation, but this initial downturn in the relative performance could be a sign of further weakness to come.

Defensive Sectors Showing Early Signs of Strength

So if these leadership sectors are starting to slow down, which sectors are showing an improving relative strength?  Our next chart shows the relative performance of the four traditionally defensive sectors, most of which have turned higher over the last two weeks. 

Again, I’d hesitate to declare this a full and confirmed rotation, but the fact that defensive sectors are improving here suggests investors are beginning to reallocate a bit to more risk-off positions.  Over the next few weeks, improvement in these defensive sectors could provide a clear validation to a “market in correction” thesis.

Relative Rotation Graphs Confirm Defensive Rotation

Of course, when we’re talking about sector rotation, I always want to bring up the Relative Rotation Graphs (RRG) and benefit from Julius de Kempenaer’s innovative data visualization approach.  First, let’s see how the daily RRG showed the 11 S&P 500 sectors back in early May.

We can see that the Leading quadrant includes those leading sectors such as technology.  In the Lagging quadrant we’ll find pretty much everything else, including all four of the defensive sectors discussed above.  Now let’s fast forward to the current RRG and see how things have rotated.

Now you’ll find health care, consumer staples, and other defensive sectors in the Improving quadrant.  Technology, industrials, and consumer discretionary have now rotated down into the Weakening quadrant.  So the RRG is showing at least an initial rotation away from the sectors that have been leading off the April market low.

One of the most important arguments from the bulls has been the dominance of offensive sectors over the last six weeks.  But as we’ve shown here today, the sector may be changing from a clearly bullish reading to a much more defensive warning sign for investors.

RR#6,

Dave

PS- Don’t miss our daily market recap show on YouTube every trading day at 5:00pm ET!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

marketmisbehavior.com

https://www.youtube.com/c/MarketMisbehavior

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

You Might Also Like
  • Earnings From These 3 Stocks Could Be Key
  • Investors Continue To Believe
  • 3 Key Relationships to Help Assess Market Direction
  • Is the Bull Market Back? Watch These Charts
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Run Your Stock Portfolio Like a Pro Sports Team
next post
Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right Now

You may also like

Confused by the Market? Let the Traffic Light Indicator Guide...

May 9, 2025

Watch the Ebb and Flow — This Market NEEDS a...

July 21, 2023

MEM TV: Markets Stall As Week Progresses – Here’s Why

October 14, 2023

My Downside Targets for the S&P 500

October 28, 2023

Your Questions, Answered! Price Gaps, Bull Flags, Inverse Patterns, and...

February 9, 2024

The Halftime Show: Crude Oil Back in the “White House...

December 14, 2023

DP Trading Room: Beware These Groups of Stocks

May 8, 2023

Jesse Livermore on Mistakes & Rising From the Ashes

September 21, 2023

Equities Set New Highs As Growth Sectors Drive Markets

July 8, 2024

Market Rotation and Cap-Weight Dynamics: A Closer Look

February 21, 2025

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • How Fanatics is teaching business acumen to pro athletes

      June 24, 2025
    • Walmart to pay $10 million to settle lawsuit over money transfer fraud

      June 23, 2025
    • Apple sued by shareholders who allege it overstated AI progress

      June 23, 2025
    • AI Stocks Ignite Again—Where Smart Money is Heading Next

      June 23, 2025
    • This Week’s Earnings Watch: Turnarounds and Momentum Plays

      June 23, 2025

    Popular Posts

    • 1

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 3,605 views
    • 2

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,885 views
    • 3

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,583 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,545 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,424 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,146)
    • Investing (538)
    • Stock (2,627)

    Popular Posts

    • 1

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 2

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 3

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • How Fanatics is teaching business acumen to pro athletes

      June 24, 2025
    • Walmart to pay $10 million to settle lawsuit over money...

      June 23, 2025
    • Apple sued by shareholders who allege it overstated AI progress

      June 23, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,146)
    • Investing (538)
    • Stock (2,627)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    MACD + ADX: Spot the Pullbacks...

    May 22, 2025

    Here’s My Long-Term Perspective on U.S....

    May 6, 2024

    Retail and Regional Banks Will Call...

    March 7, 2023
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here