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Tech stocks lead the way | Relative Rotation Graphs

Many commentators are now picking up on the fact that tech stocks are driving the US market advance – something we saw early and covered last week. In this week’s article, we’d like to shed more light on our observation that tech stocks are leading the pack, before going on to look at one tech company in particular – Netflix.  

Major stock markets in short-term uptrend

Starting with a review of major indices, the Relative Rotation Graph (RRG) below shows the direction of travel for a group of leading stock market indices against a 0% return. In the past, we have used the MSCI World Index – a kind of index of indices – as a benchmark, but this RRG plots major indices’ performance against cash. In other words, this chart shows that stock indices are doing well absolutely, not just relatively. 

Most indices, including US and European markets, are in the leading quadrant, meaning that they are in a short-term uptrend in terms of price. The exception, as we’ve seen in recent weeks, is Hong Kong’s Hang Seng index, which sits in the lagging quadrant. 

Stoxx 50 powering towards next resistance marker

Last week we pointed out that Europe’s Stoxx 50 [SX5E] was poised to break above an important resistance level at 3,600 as upside momentum was strengthening. Well, it smashed through with gusto. The index has now broken the long-term downtrend line which we can trace back to the start of 2022. This year’s bear market is over, having ended after two failed attempts to break below 3,400. Our RRGs alerted us to the loss of momentum and drew attention to the potential move higher, which has now materialised. 

The Euro Stoxx 50 is powering towards the next level of resistance at around 3,800. However, resistance there is light. Furthermore, momentum – as indicated by the moving average convergence divergence (MACD) line – is increasingly strong, gaining power as it advances. 

S&P 500 motoring ahead

Similarly, the S&P 500 [SPX] has also made a powerful upwards move, breaking the downtrend line that stretched back to the April high. However, it has hit a strong level of resistance at 4,150. We have a series of lows there, including the break below it in May and the resistance that was hit in June. SPX faces a bigger challenge breaking resistance at 4,150 than the Euro SX5E faces at 3,800. 

The upward movement of an exchange-traded fund (ETF) based on the S&P 500 were recently covered by Mish Schneider here.

Nasdaq breaks resistance

The index with the highest relative-strength ratio, based on the RRG at the top of this article, is still the tech-heavy Nasdaq 100 [NDX]. As the chart below shows, NDX has broken above 13,000. This level, which provided support at the February and March lows, became resistance in July. Having now been broken, resistance can become support. Moreover, the gap between the MACD and its signal line is widening, indicating that the Nasdaq’s advance is gaining momentum. 

Most major tech stocks still in improving quadrant

The RRG below shows the performance of a group of leading tech stocks, using the S&P 500 as a benchmark. Sampling is weekly. The arrowheads for Netflix [NFLX], Meta Platforms [FB in our charts, though the company’s official stock ticker is now META], Nvidia [NVDA], Tesla [TSLA] and Apple [AAPL] are all in the improving quadrant. Alibaba [BABA] is in the leading quadrant, while Twitter [TWTR] is relatively strong too. 

In contrast, Google parent company Alphabet [GOOGL] is heading deeper in to the lagging quadrant, with Amazon [AMZN] is even further to the left, but moving towards the improving quadrant.

Netflix building momentum

The above RRG shows that Netflix has the strongest reading on our JdeK RS-Momentum line. Moving to the right, it also performs well against our JdeK RS-Ratio line. NFLX is not yet outperforming the group of leading tech stocks on a relative basis, but it may be heading towards that status. 

The daily price chart for Netflix, below, shows a base at 205. Netflix has broken above this line, which now provides substantial support. Looking towards the 250 level and above, we see a big resistance-free gap that was caused by the ‘subscriber shock’. Major resistance kicks in at 340.

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


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