The Best Five Sectors, #1: Week 1 Ranking of 11 SPDR Sector ETFs Using RRG

Since the launch of Relative Rotation Graphs (RRG) in 2011, there has been persistent curiosity about how RRG performs in practice. People frequently ask about the track record of RRG or the trading rules that underlie it. The core answer remains consistent: there is no single track record for RRG because there is no single set of universal rules that govern it. Relative Rotation Graphs are fundamentally a data visualization tool that can be applied across multiple markets, on various time frames, and with different levels of risk. In most discussions I have had, I would pivot the question toward a different comparison: what is the track record of a bar chart, or what are the trading rules for a bar chart? The implication is that a visualization tool can be adapted and tested in many ways, and that any rules-based or quantitative approach must be derived from concrete prerequisites rather than assumed.

Over the years, I have intermittently explored and experimented with several methodologies to move toward an objective, running approach. This remains an ongoing, collaborative work in progress. The plan for 2025 is to share the outcomes of Version 1 of this approach, using the 11 SPDR sector exchange-traded funds (ETFs), in a weekly update within this blog, and to track the results over time. A key point is that I do not intend to disclose every technical detail of the methodology at this stage, as that could lead to the development of an investable product before its time. The fundamental concept, however, rests on integrating multiple weekly and daily RRG data points into a single metric, which then enables the formation of a ranking across the 11 SPDR sector ETFs. The ultimate goal is to identify the “best five sectors” based on this composite metric and to use that ranking as the basis for portfolio construction.

Going forward, the plan is to publish this ranked list on a weekly cadence and to monitor the performance of a portfolio composed of the five top sectors, each allocated a 20% position. This approach combines objective data signals with a simple, transparent weighting scheme that is easy to track and reason about. The intent is not to promise certainty but to establish a disciplined framework that can be tested and refined over time. The first week of 2025 marks the starting point for this initiative, and the portfolio composition for that initial week reflects the five SPDR sector ETFs that are currently highlighted in the ranking: Consumer Discretionary, Communication Services, Financials, Technology, and Industrials.

Brief overview of the portfolio components for Week 1 of 2025

• XLY (Consumer Discretionary)
• XLC (Communication Services)
• XLF (Financials)
• XLK (Technology)
• XLI (Industrials)

Weekly RRG and Daily RRG data, along with price charts for these sectors, will be analyzed to form the weekly top-five ranking. The aim is to observe how these sectors interact within the RRG framework and to assess whether their relative performance and momentum signals align with the ranking outcomes.

Consumer Discretionary
Consumer Discretionary has shown resilience after an upward breakout. The price action suggests that the area around 210 should act as a support level in the event of a pullback. Relative strength remains a key driver, and the current configuration indicates that the sector is continuing to exhibit positive momentum relative to other parts of the market. The chart patterns point toward ongoing strength, with the price structure maintaining higher highs and higher lows on the relevant time frame. The RRG perspective corroborates a favorable tilt, underscoring the importance of monitoring for any signs of exhaustion or a shift in trend direction that could alter the sector’s relative trajectory. Traders and investors should remain attentive to potential pullbacks toward the support zone, as a break below that area could signal a shift in the immediate trend, while sustained strength would reinforce the case for continued exposure within the top-five framework.

Communication Services
Communication Services has been testing the former rising resistance line, which is now acting as support. In addition, the relative strength component has broken out of its previous trading range and appears to be moving higher. This combination of price action and momentum signals suggests that the sector is strengthening its position within the rotation framework. The move above prior resistance and the breakout in relative strength imply that the sector could continue to lead on a relative basis if the current momentum endures. As always, it remains prudent to watch for any signs of a shift in the supporting trend lines or a reversal in momentum that could alter the sector’s standing within the weekly ranking.

Financials
In Financials, the rhythm of higher highs and higher lows on the price chart remains intact, indicating ongoing trend strength in price. Relative strength is now testing the upper boundary of the former trading range as support, which is a constructive signal. If the sector maintains this support and the price action continues to verify higher highs, the sector could remain a strong component of the top-five portfolio. Conversely, any deterioration in the support level or a breakdown in relative strength could lead to a reassessment of its position within the ranking. Overall, the current configuration suggests continued resilience, provided the support holds and follow-through momentum is sustained.

Technology
The Technology sector continues to contend with overhead resistance around the 240 area. Despite this barrier, there has not been a significant decline in prices that would indicate a structural weakness relative to other sectors. Relative strength remains within the boundaries of its trading range, implying that the sector has not yet convulsed into a sustained trend reversal. The ongoing dynamic suggests a balance between upside potential and the risk of a pullback if resistance holds or if a deterioration in broader market conditions emerges. The sector’s position within the top-five framework will likely depend on whether the price can navigate the resistance zone while sustaining favorable relative-movement signals.

Industrials
Industrials is testing a rising support line, and as long as this support holds, the sector remains in a favorable position from a price perspective. Looking at the relative strength component, there is a clear rationale for why Industrials is the fifth sector in the current lineup. A small double top has completed, which could imply a potential onset of relative weakness. However, until that pattern translates into a sustained move lower in price or a meaningful deterioration in the relative strength signal, the sector can still be considered a viable part of the basket. Ongoing monitoring of the price action around the support line and the momentum posture is essential to determine its continued fit within the top five.

Ongoing approach and expectations
The broader objective of the analysis is to test, validate, and refine a systematic framework that combines weekly and daily RRG data into a single, interpretable metric. The ranking should help to identify the most robust sectors on a weekly basis, with an explicit allocation plan that emphasizes diversification across the top-performing sectors while maintaining a clear risk-management framework. While the plan is to publish weekly results and track a model portfolio, it is important to acknowledge that results will evolve over time as market conditions change and as the methodology is fine-tuned. The emphasis remains on consistency, documentation, and disciplined execution rather than on sensational short-term outcomes.

A note on methodology and transparency
The project is designed to be iterative, with Version 1 serving as a foundation for future enhancements. The core premise—combining multiple data points from RRG into a single ranking for the 11 SPDR sector ETFs—will be tested against real-market performance. The choice of a 20% allocation to each of the top five sectors is intended to create a straightforward, transparent approach that is easy to implement and monitor. The larger objective is to demonstrate whether this structured, rules-based approach can deliver meaningful exposure to sectors exhibiting favorable rotation characteristics, while also providing a clear framework for evaluation and improvement over time. It is worth noting that the RRG tool itself is a visualization and analysis framework, not a guaranteed predictor of future returns. Its value lies in helping investors understand rotation patterns, identify potential leaders and laggards, and support disciplined decision-making.

About the author and the evolving nature of RRG research
The work described here is grounded in the practice of applying Relative Rotation Graphs to real markets with the explicit aim of deriving actionable, testable insights. The author is an experienced technical analyst focused on sector rotation, momentum, and relative strength, who created and refined this approach as a way to translate complex rotation dynamics into a practical decision-making framework. The project remains a live research initiative, prioritizing clarity, rigor, and reproducibility. Readers are encouraged to view this as a dynamic exploration rather than a finished product, with weekly updates designed to reveal how the approach evolves and what lessons emerge over time.

Conclusion
In sum, Relative Rotation Graphs are presented as a flexible data visualization tool rather than a fixed trading system. The lack of a single track record or universal rules is not a shortcoming but a reflection of the tool’s adaptability across markets and timeframes. The current effort seeks to establish a transparent, repeatable method for selecting the strongest sector exposures using a composite, rule-based ranking derived from weekly and daily RRG data. By focusing on the 11 SPDR sector ETFs and grounding the approach in a disciplined allocation to the top five sectors (each at 20%), the framework aims to provide a structured path toward monitoring sector rotation in a way that is both comprehensible and research-driven. As the weeks unfold in 2025, the ongoing objective is to test, refine, and communicate results in a manner that supports informed decision-making and continuous improvement.