Sector Relative Strength: RRG Without the Jargon
Sector relative strength measures how each sector performs against a benchmark — typically the S&P 500 — over multiple time horizons. The Relative Rotation Graph (RRG) visualizes this on a single chart, plotting each sector on a quadrant grid that shows where leadership is forming, where it is fading, and which sectors are improving or deteriorating relative to the broad market. The framework is a clean way to see sector rotation without watching dozens of charts.
The Four Quadrants
Leading (top right) — Sector is outperforming and momentum is rising. Strong relative strength. The dominant theme of the current cycle.
Weakening (bottom right) — Sector is still outperforming but momentum is fading. Leadership peaking. Often the most dangerous quadrant for late entrants.
Lagging (bottom left) — Sector is underperforming and momentum is falling. Weak relative strength. The unloved corner.
Improving (top left) — Sector is underperforming but momentum is rising. Early signs of new leadership. The most interesting quadrant for rotation traders.
How to Read the Chart
Each sector’s position shows current relative strength versus benchmark. The trail behind each point shows direction of travel — the last 5–10 weeks of movement. Rotation typically follows a clockwise pattern: Improving → Leading → Weakening → Lagging → Improving. The cycle plays out over 4–12 weeks in normal markets, longer in structural regime changes.
Time Horizons
- 21-day RRG: Tactical rotation, useful for short-term positioning
- 63-day RRG: Medium-term sector cycles, useful for portfolio tilts
- 252-day RRG: Structural rotation, useful for thematic positioning
Closelook’s Lab dashboard tracks all three horizons across 11 SPDR sectors versus SPY. Disagreement between horizons is itself a signal — a sector Leading on the 21-day but Lagging on the 252-day is in a tactical rebound, not a structural turn.
Common Failure Modes
A sector in Improving can fall back to Lagging if momentum stalls before crossing into Leadership. The graph is descriptive, not predictive — it shows where rotation has been, not where it will go. In thin rotation environments where everything moves together, the chart compresses and offers little signal. Reading RRG without context is how rotation traders get whipsawed.
How Closelook Uses It
The Lab maintains an RRG for 11 SPDR sectors versus SPY at 21/63/252-day horizons. Sector rotation feeds into the Weekly Signal (Layer 4: Context) and into the Rubin/HALO/Euro-AI sector rotation portfolios. It is not a primary signal but a confirmation lens — when relative strength agrees with the underlying thesis, conviction increases; when they disagree, the thesis needs re-examination.