Rotation vs Rollover
- Posted by Greg Harmon
- on March 28th, 2012
I posited last night that there were signs of a rotation into Utilities and gave some thoughts on which ones looked good for a rise in price (link below). But I did not explain why I thought it was a Rotation and not a Rollover. The answer lies in the difference between the daily and weekly charts. The daily chart of the Technology Select Sector SPDR, $XLK, shows a Relative Strength
Index (RSI) that is bullish but overbought near 80. The trend is higher but a pullback or sideways consolidation in the near future looks likely. The Utilities Select Sector SPDR, $XLU, shows a rise off of a base with the RSI rising and bullish and the MACD crossing positive. There is plenty of room higher. This shows the stalling with $XLK and rising of $XLU, a relative flow from one to the other. This could be either a Rotation or Rollover. The answer lies in moving out to the weekly
charts. Notice that the weekly chart for $XLK shows no indication that it may pullback soon with the RSI bullish and still under 75 while the MACD is positive and growing. The trend is beautiful rising line progressing higher along the expanding Bollinger bands. Sweet! But the $XLU
is holding up on the weekly chart quite well. The RSI is bullish and kinking higher while the MACD is now improving toward a bullish cross higher. It has a positive set up but not nearly the strength that the daily chart is showing. The $XLK looks much stronger on this time frame.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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