US and UK stocks to watch in a falling market | Relative rotation charts

With the markets down sharply this week, the RRG-based analyzes we follow have yielded very little. This is to be expected when looking for buying opportunities in markets that generally tend to fall. However, the good news is that the scans did not come back completely empty.

In the S&P 500 index, only three names have surfaced. I asked for all matches that took place in the week of September 19-23.

Plotted on a Relative Rotation Graph (RRG), it gives us the image below.

Of these three candidates, ABBV and WYNN show what I would describe as “reasonable” charts.

AbbVie appears to have ended its downtrend by breaking the descending resistance line above the highs since March. Since July/August, an inverted head-shoulder (H&S) formation has been forming. In particular, the latest rally from the late August low helped push relative strength against the S&P 500 higher, and thus push ABBV’s tail deeper into the main quadrant of the RRG.

This week’s bounce off the neckline that marks the top of the H&S pattern confirms aerial resistance in this area. Only when the market is able to break above this neckline, currently around 145, should we anticipate further upside potential.

United Kingdom – FTSE 350

In the FTSE 350 universe, there have been some additional successes, as you can see in the chart below.

The RRG for these symbols looks like this:

Going through the individual charts, I found three symbols that may have potential.

Fresnillo [FRES]

Fresnillo [FRES] managed to stay above its July lows, and even recorded two higher lows as all recent highs formed against 755, which is now a clear resistance zone.

The relative trend (red line JdK RS-Ratio) is up, and the green line JdK RS-Momentum is regaining strength.

A break past this resistance zone around 755 is likely to unlock more upside potential towards the next zone near 820.

ICAP TP Group [TCAP]

For TCAP, we need to look at a slightly longer chart to appreciate recent movement. The rebound from the July low clearly goes against the overall market trend, pushing the RS-Ratio line strongly above the 100 level.

The small pause when TCAP reached horizontal resistance around 160 caused the green RS-Momentum line to dip and briefly move below 100. On the RRG, this translates to a spinning tail from the quadrant main, weakens, then curls back into leading again, without touching the lagging quadrant.

We know these moves are strong because they represent the start of a new upside phase in an already upside relative trend. The current series of higher highs and lower lows are strong, and action appears to be on for a test of the next resistance area around 190.

Diversified energy [DEC]

On the RRG, we find the tail for DEC inside the improving quadrant and moving towards the main quadrant at a strong RRG heading.

Based on the position of the tail on the RRG compared to the other two names, DEC should have the best potential from a relative perspective, since it is earlier in its movement. But for this reason, it also carries the greatest risk.

The DEC broke through significant overhead resistance in August and reached a high just above 140, before falling back and testing the former resistance area as support. Moving back into the range is usually a bad sign, but the aggressive buying that pushed the DEC back above resistance should be interpreted as strength, hence the rotation through the improvement and into the main quadrant.

Finally, the positive divergence between the Relative Strength Index (RSI) and the price over the past few weeks is favorable for further upside, potentially back to the August highs.

The price is indicative. Past performance is not a reliable indicator of future results. RRG’s views and conclusions are their own and should not be relied upon as the basis of any trading or investment decision.

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