Long Term Relative Strength and Weakness - Example
Posted by Pete Stolcers on August 12, 2006
Chart 1 – This is an example of relative strength. Notice how Quest Diagnostics has been in a major uptrend while the SPY (Chart 2) has been range bound for the last three months. While the market was selling off, DGX was holding its own. When it rebounded, DGX moved higher.
Chart 2- If you were bullish and you went long the SPY, you could have been whipsawed out of a position and lost money. If you were long DGX, you would have been able to stay with the position because you never had reason to bail.
Chart 3 – Notice how ENER has been in a steady down trend. At a time when the market has been range bound this stock could not find a bid. It can’t even generate a small short covering rally. If you were bearish and you shorted ENER, you would have done very well. Not so with the SPY.
Chart 4 – Now, suppose you went long DGX and short ENER. You would have made money on both stocks and more importantly, you would have reduced market risk. Both of these stocks still look good and they were in recent reports.
Posted in Relative Strength/Weakness - My Edge.