Sector Rotation: Consumer Staples Tops the Standings
Technology XLK led the week's downside rotation and Consumer Staples XLP tops the standings.
Dispersion among the eleven S&P 500 sector ETFs stands in an elevated regime as of October 16, with returns running further apart than their recent norm. The z-score is +1.65, and the spread widened sharply over the past five sessions. The widening is recent.
Consumer Staples XLP posted the strongest upside rotation and ranks first at +0.82. XLP ranks in the Leading quadrant, and its +0.24 20-day reading with +0.04 on the 13-week line leaves it an emerging leader with near-zero intermediate backing. Utilities XLU and Materials XLB rotated up hardest behind it and rank fifth and fourth as early improvers. Energy XLE and Healthcare XLV hold second and third in the Leading quadrant. XLE strengthens from an established positive base across both horizons, and XLV pairs flat tactical motion with an improving 13-week line. Financials XLF and Real Estate XLRE rebounded to sixth and seventh from lagging positions; both show tactical recovery and structural drag.
Technology XLK led the downside rotation and ranks eleventh at -1.41. XLK sits in Weakening, with -0.20 on the 20-day line and +0.01 on the 13-week line after both horizons rolled lower over the week. Industrials XLI and Consumer Discretionary XLY also deteriorated and rank tenth and ninth. Communication Services XLC ranks eighth with little motion and a neutral lagging profile. Five of the eleven sectors hold positive leadership states.
Sector Rotation Map
How to read this report
The readings
13W, 20D, 5D: each day we compare a sector's return with the average return of the 11 sectors, each counted equally. The S&P 500 weights them by size, so the two can differ. We divide that gap by how much the sector usually moves in a day (its daily swings over the last 20 sessions), so a quiet sector and a volatile one are measured on the same scale. Each reading averages these daily scores over its window: 13W over the last 13 weeks (about a quarter), 20D over the last 20 sessions (about a month), 5D over this week. +0.50 means that on a typical day the sector beat the average by half its usual daily move; 0 means it matched the average.
In the text
Dispersion regime: how far apart the 11 sectors' returns were on the latest day (the spread of their daily returns), compared with that spread's average over the last 60 sessions. The z-score is the distance from that average, in units of the spread's usual variation (estimated with a GARCH model, which widens the unit when markets turn volatile). High-dispersion (+2 or more) and elevated (+1 to +2): sectors moving further apart than usual. Normal: -1 to +1. Transitional-low (-1 to -2) and low-dispersion (-2 or less): sectors moving more closely together than usual.
Ranks are this week's standings, by 5D. The quadrant (see On the chart) uses 13W and 20D, so a sector can rank near the top this week and still sit in Lagging.
On the chart
Quadrant: does 20D agree with 13W? The chart plots 13W across and 20D up. Leading: beat the average on 13W and is still beating it on 20D. Improving: trailed on 13W, but has beaten the average on 20D. Weakening: beat the average on 13W, but has trailed it on 20D. Lagging: trailed on 13W and is still trailing on 20D. In Improving and Weakening, 20D goes against the 13W trend. A reading near zero means a sector close to the average, whatever its quadrant.
Trails and dots: each sector's path over the last 5 sessions. The dot marks the latest session, coloured by its state (defined under the table).
Sector Leadership Matrix
Sector
13W Z
20D Z
5D Z
Velocity
Quadrant
State
Energy (XLE)
+0.21
+0.17
+0.53
+0.12
Leading
Confirmed Leader
Healthcare (XLV)
+0.12
+0.17
+0.43
-0.01
Leading
Confirmed Leader
Consumer Staples (XLP)
+0.04
+0.24
+0.82
+0.19
Leading
Emerging Leader
Technology (XLK)
+0.01
-0.20
-1.41
-0.44
Weakening
Rollover
Materials (XLB)
-0.01
+0.01
+0.42
+0.14
Improving
Early Improving
Communication Services (XLC)
-0.03
-0.07
-0.15
-0.02
Lagging
Neutral
Financials (XLF)
-0.05
-0.13
+0.08
+0.09
Lagging
Unconfirmed Rebound
Consumer Discretionary (XLY)
-0.07
-0.02
-0.32
-0.06
Lagging
Deteriorating
Industrials (XLI)
-0.13
-0.17
-0.48
-0.10
Lagging
Deteriorating
Utilities (XLU)
-0.15
+0.04
+0.17
+0.14
Improving
Early Improving
Real Estate (XLRE)
-0.16
-0.16
+0.05
+0.08
Lagging
Unconfirmed Rebound
How to read this table
13W Z, 20D Z, 5D Z: the readings defined above; the table is sorted by 13W Z, strongest first.
Velocity: how much 20D changed this week; positive is rising, negative is falling. It is the vertical part of the sector's trail on the chart.
State: the quadrant refined by how 13W and 20D moved this week.
Rollover: Beat the sector average on 13W, but both 13W and 20D fell this week, 20D by more than 0.10.
Confirmed Leader: Beat the sector average on 13W and 20D, and is one of the two strongest on 13W.
Emerging Leader: Beat the sector average on 13W and 20D, outside the two strongest on 13W.
Early Improving: Trailed on 13W and beat the average on 20D, by 0.20 or less (and at most 0.50 on 5D), or with 13W falling this week.
Unconfirmed Rebound: Trailed on 13W and 20D; 20D rose more than 0.05 this week while 13W kept falling.
Deteriorating: Trailed on 13W and 20D, and 20D fell more than 0.05 this week.
Neutral: Trailed on 13W and 20D, outside the four weakest on 13W, with little change this week.
Romain Gandon CEO, Quantlake
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Past performance is not indicative of future results.
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