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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.rsi1.png

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Posted in Relative Strength/Weakness - My Edge.

Option Trading Comments

  • On 08/29, Sean said:

    In this article you mention using the alpha indicator.  Are there other indicators that you use to enhance your method?

  • On 08/29, Pete Stolcers said:

    In terms of pure relative strength and weakness, there is no substitute to watching a stock trade real-time side-by-side with the overall market (SPY). Before you can get to that "micro" level, you have to find the stock. I use my searches to do the heavy lifting. When I’m flipping through the search results I keep the recent market action in mind. If there have been two or three very weak market days recently and I’m looking for a bullish trade, I will be focusing on how well the stock held up on those days. In lieu of that, you can overlay the stock and the SPY to see how they compare.

  • On 11/25, John said:

    In your results you show a ‘weekly’ result that appears to be picks that you buy and sell BUT in the breakdown of the weekly offering you say you use credit spreads and spreads in general.

    I usually only BUY Calls or Puts depending on the recommendation.....will this work with your signals?

  • On 06/02, Karni said:


    I read your blog inside out. Very interesting.
    I can’t find the charts of this post. Where are they?

  • On 06/04, Pete Stolcers said:

    I recently transfered my blog over to a new web host and it appears my charts were lost in the process. I will try to retrive them.

    Thnx for the heads up.

  • On 08/28, Daniel Croushore said:

    Recently I had been thinking along the lines of the relative strength/relative weakness concept. I noticed that when the DJIA was having corrections that made everyone panic, some stocks continued going up. So I’m thinking that if I take note of which stocks those are, and watch for them to pull back to a moving average just about when the DJIA looks like it’s ready to edge up again for a while, those strongly uptrending stocks are very likely to go up nicely… probably even enough for those who prefer to use simple Call plays. I haven’t tried this theory out yet, but it’s encouraging to read that other traders do use this strategy successfully.

  • On 08/28, Pete Stolcers said:

    This is a very successful strategy. This is my trading edge and all of my research is based on the concept. You should consider trying my Free Trial. You can view all of my research and see it in action. The Daily Report has my best long and short of the day and I monitor the stocks in each watch list through a dynamic table that updates continually. This helps subscribers zero in on the strongest/weakest stocks.

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