Wanting Again at The Largest Rotation of 2022 | RRG Charts

I’ve been quiet on the video and weblog aspect of issues over the previous weeks. Nonetheless, simply earlier than you pop the champagne for a grand New Yr’s eve celebration, I need to take the chance to look again at possibly crucial or dominant rotation that befell in 2022.

I’m speaking in regards to the Development vs. Worth rotation.

The RRG above exhibits the final 30 weeks of that rotation, however the story begins in the beginning of the 12 months and the primary six months of 2022.

The RRG above captures that rotation. The start line of the tail is at the beginning of the 12 months, and the tail ends on August 8. So the 12 months began with Development getting into the lagging quadrant, whereas Worth moved into main. The dominance of Worth over Development lasted till mid-March, when each tails started to bend. Worth began to lose relative momentum and rolled over contained in the main quadrant, whereas Development moved reverse inside lagging.

The loss / achieve of momentum pushed Worth into lagging and Development into main on the finish of August, however even throughout this “counter transfer,” worth shares maintained their outperformance vs. Development. The tails began to bend within the week of March 7 and entered the alternative quadrant within the week of August 29. Throughout that interval, Worth misplaced 6% whereas Development misplaced 8.2%.

As you’ll be able to see on the RRG on the prime of this text, the tails began to maneuver in reverse relative momentum instructions nearly instantly after getting into the main/lagging quadrant on the finish of August, re-entering the downtrend of Development vs. Worth. Over the past weeks, the relative momentum (RS-Momentum) has leveled off, however the enhance in relative power remains to be there, and that’s how this relationship will probably be getting into 2023.

A Huge Double High

The common price-time chart exhibits how badly this 1-1 relationship developed by means of 2022.

After a few years of Development dominance, this relationship fashioned a large double-top formation, confirmed when the ratio dropped beneath the 2021 backside close to 1.3750. Based mostly on that massive reversal sample, a value goal could be calculated both round 1.14 when utilizing a percentage-based transfer, or round 1.10 when utilizing absolutely the distinction. Both method, we’re not there but.

And even when this ratio would discover assist someplace within the 1.10-1.14 vary within the first weeks of 2023, it appears impossible that it’s going to revert and instantly begin a steep uptrend once more. Loads of resistance ranges are ready to the upside, which can cap any rally in the meanwhile.

If any worth could be taken from this ratio as a danger on / danger off metric, the message is fairly clear; we’re nonetheless in danger off mode for now.

Based mostly on these observations, my tackle the markets at the beginning of the brand new 12 months will nonetheless be very cautious. We may even see some pockets of enchancment right here and there or possibly available in the market as a complete ($SPX), however danger stays elevated in the meanwhile.

I want all a really completely satisfied and wholesome new 12 months, and I hope to see you as readers of the RRG weblog and/or watchers of Sector Highlight in 2023.

#StaySafe –Julius