Comparative Relative Strength
|This is a comparison of the price
movement of a stock with another stock, or sector, or index. It
allows for a development of strategies based on the
relationships between movements of different underlying
interests. Using critical day analysis which has had an 80%*
success rate at pre determining the short term pivot points for
the markets, traders can then look at stocks, sectors or a broad
selection of indices to help build evidence of trade
opportunities and apply forethought to various market
relationships that occur.
We have better than an 80%* success
rate over 6 years with an average of 5 signals a month.
A comparative relative strength
graph shows the S&P500 Index
and one of its components picked at random. In this example,
Advanced Micro Devices is plotted as a line graph against a line
graph of the S&P500 Index. The value in the plot is as a
comparison of performance and correlation of movement. Since we
pick trend reversals of the short trend of market indices,
highly correlated stocks will tend to move with the index. The
graph of Advanced Micro Devices shows some periods of
correlation and periods like the beginning of 1999 when the
stock moved on company specific news.
Comparative relative strength can be
a measure of performance in that a comparison can be drawn
between the performance of a stock and a sector, or a stock and
the overall index. Stocks of one company can be compared to
that of a competitors share price and market action. Graphing
two plots over similar time periods allows for a quick reference
of performance and offers a method of comparison and if a strong
co-relational relationship exists, offers a way to develop an
expectation for price action on one stock as a result of price
action on another stock or index.
A look at a
Nortel Networks is compared against
the S&P500 Index for the period of August and October 2000.
Nortel is shown as a line plot of closing prices in red. The
S&P500 Index is shown as a bar chart with critical days marked
on the graph in blue and red dots. There appears to be a high
correlation between the two for this period as a movement in one
seems to coincide with a movement in the other price plot.
The critical days are indicated with
blue and red dots on the graph. These are days we give to
members in advance that identify possible reversal days for the
short trend. You can see a closer look at
critical day research throughout the site.
With a high historical success rate
on a variety of major indices, our critical day research can
have application for stocks, options and futures. For stocks,
finding a highly correlated stock to the index is the beginning
step to finding trading application for our research in your
daily trading activity.