One of the strengths of Relative Rotation Graphs (RRGs) is that they don’t just show you which sectors are outperforming or underperforming; they also reveal how broad or narrow that outperformance is. In other words, you’re not just looking at rotation, but also at breadth.
That combination makes RRGs uniquely powerful.
You’ve probably seen times where the S&P 500 was rising, but it felt like the rally was resting on one or two sectors, often large-cap Tech. That’s a market with poor breadth. And while it might look strong on the surface, it’s vulnerable underneath.
On an RRG, you can see this right away. If just one or two sector tails are long and pointing northeast (into the Leading quadrant), while the rest are stuck in Lagging or Weakening, you’re looking at a narrow advance.
That’s your early warning signal.
Traditional breadth indicators (like A/D lines or new highs vs. new lows) measure absolute movement. They’re helpful, but they don’t give you the relative perspective that RRGs provide.
What you get with RRGs is a visual map of how different sectors or stocks are performing relative to a benchmark, typically the S&P 500. This allows you to assess market breadth at a glance.
If a broad group of sectors is pushing into the Leading and Improving quadrants, that’s confirmation of strength. If it’s only a couple of high-fliers doing all the work, be cautious.
Beyond breadth, RRGs are built to track rotation, the dynamic process of sectors gaining or losing relative strength and momentum.
This is where the shape and direction of the tails become essential. A sector rotating from Lagging to Improving, then curling into Leading, suggests building relative strength. One rotating the other way, from Leading into Weakening, warns of potential loss of momentum.
Watching these rotations play out over time (using the animation feature) gives you a visual narrative of what’s happening under the hood of the market.
Here’s one of the more nuanced points I often make when using RRGs: it’s not just about how many sectors are moving in a particular direction, but which ones.
If three or four sectors are moving in sync into the Leading quadrant, that’s significant. But if those sectors are also large-cap heavyweights like Technology, Financials, or Healthcare, their impact on the benchmark is even greater.
So when evaluating clusters on an RRG, don’t just count sectors. Pay attention to market capitalization. A few big players moving in the same direction can shift the tone of the market much more than a broader move in smaller sectors.
If you’re running a sector rotation strategy or just actively managing ETF allocations, RRGs offer an edge.
Rather than reacting to performance after the fact, you can use the position and trajectory of sector tails to anticipate where relative strength is developing. That allows for more proactive positioning.
Look for sectors that are transitioning from the Improving quadrant into the Leading quadrant, with strong tails. That’s typically where opportunity lies. On the flip side, when sectors begin rolling over into weakening and then start moving at a negative RRG-Heading, that’s often a good time to reassess exposure.
Breadth and rotation are not new concepts. What’s new is being able to see them unfold, clearly and intuitively, in one unified view.
That’s what RRGs bring to the table. Whether you’re managing a portfolio or just trying to understand market internals, combining breadth and rotation gives you a deeper, more informed read on what’s really happening.
So the next time you open an RRG, don’t just ask “who’s leading?” Ask:
How many are participating? How big are they? And what does the rotation pattern suggest about what’s next?
That’s the real value of visualizing breadth and rotation, together.
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