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Sector Leadership Through the Lens of Relative Strength

Sector Leadership Through the Lens of Relative Strength

This month, we look at the 11 Macro Sectors, each compared to the broad market to see which sectors are gaining strength and which are losing strength. Additionally, we provide an update on many of our key relative strength indicators like the High RS Diffusion Index and the RS Spread in order to gauge the overall environment for relative strength investing.

What’s Hot…and Not

How different investments have done over the past 12 months, 6 months, and 1 month. Never before has it been easier for investors to invest in the strongest trends wherever they might be found in the world due to the global nature of financial markets. Relative strength offers a disciplined framework for allocating among those trends. Markets are global and your portfolio should be too. As of 10/16/20:

Asset Class Performance

Past performance is not indicative of future results.

See disclosures in Appendix A, which includes the ETFs and Indexes used for this performance table. Performance numbers include dividends but do not include all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.

Fund Flows

Total estimated inflows to long-term mutual funds and net exchange traded fund (ETF) issuance collected by The Investment Company Institute.

Net New Cash Flow

See disclosures in Appendix A.

Sector and Capitalization Performance

Sector Performance | Capitalization Performance

Past performance is not indicative of future results.

See disclosures in Appendix A.

High RS Diffusion Index

As of 10/16/20:

High RS Diffusion Index

The 10-day moving average of this index is 82% and the one-day reading is 84%. This index has rebounded strongly following its recent pullback in September. 

See disclosures in Appendix A.

Relative Strength Spread

The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks). When the chart is rising, relative strength leaders are performing better than relative strength laggards. As of 10/16/20:

RS Spread

The RS Spread is nearing new highs, reflecting the favorable performance of the relative strength leaders versus the relative strength laggards.

See disclosures in Appendix A. 

Sector Relative Strength

The relative strength charts show below are of each of the 11 GICS Macro Sectors versus the S&P 500 over the last two years. Visually, this offers an easy way to see which sectors are gaining and losing strength compared to the broad market.

Communication Services
Consumer Discretionary
Consumer Staples
Health Care
Information Technology
Real Estate

Charts above are all based on price return only, not inclusive of dividends or expenses.

The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon to be successful or outperform any index, asset or strategy. In all securities trading there is a potential for loss as well as profit. 

Other Relative Strength Sources

  • Brush, John S. "Eight Relative Strength Models Compared." Journal of Portfolio Management (1986). 
  • Berger, Israel, Moskowitz. "The Case for Momentum Investing." AQR Capital Management. 2009.
  • Jegadeesh and Titman. "Returns to Buying Winners and Selling Losers." Journal of Finance (1993).
  • O'Shaughnessy, James P. What Works on Wall Street. McGraw Hill, 1997.

Nasdaq Dorsey Wright


Nasdaq Dorsey Wright is a registered investment advisory firm with more than 30 years of expertise is technical analysis, specifically focusing on the steadfast relationship between supply and demand in the markets. Our research and tools help our clients see through the day-to-day clutter of market movements while providing a clear understanding of where market strength lies at all times.

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