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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 price plot

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 our 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.