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Relative Strength: Buy the Dip or Fade the Rally?
Dan RussoCMT, Chaikin Analytics
Dan Russo, CMT• 19 Years on Wall Street
• Chartered Market Technician
• MBA From Fordham University
• Co-Chair of the NY Chapter of the CMT Association
• 10 Years Covering Large Institutional Investors
• Teach Technical Analysis at Baruch College in NYC
Topics of Conversation
What is Relative Strength?
How Do We Measure Relative Strength?
Relative Strength and Asset Allocation
Relative Strength and Stock Selection
What is Relative Strength?
Relative Strength compares the performance of one security to another with a ratio chart. This indicator is also known as the Relative Strength indicator or Relative Strength Comparative. Often, the Price Relative indicator is used to compare the performance of a stock against a benchmark index, such as the S&P 500. Chartists can also use the Price Relative to compare the performance of a stock to its sector or industry group. This makes it possible to determine if a stock is leading or lagging its peers. The Price Relative indicator can also be used to find stocks that are holding up better during a broad market decline or showing weakness during a broad market advance.
Relative Strength is simply the base security divided by the comparative security. Typically, the underlying security is a stock and the benchmark is the S&P 500.
How Do We Measure Relative Strength
I have three ways that I like to measure relative strength depending on what I am
analysing:
1. In a Table - More Quantitative
2. In a Chart: Both as a Ratio and an Oscillator. The Ratio Chart Allows for the
Application of Traditional Technical Analysis
3. In a Relative Rotation Graph
Each of these tells the same story in a slightly different way
In a Table - For Quantitative Studies
Data From Optuma
Ratio Charts
Chart Source: Optuma
Ratio ChartsiShares
Chart Source: Optuma
Relative Strength as an OscillatoriShares
Chart Source: Optuma
Relative Rotation Graph (RRG)iShares
Chart Source: Optuma
Relative Strength for Asset Allocation
Data From Optuma
Relative Strength for Asset AllocationiShares
Chart Source: Optuma
Relative Strength for Asset AllocationiShares
Chart Source: Optuma
Stocks Are Leading, Now What? Sector Work
Data From Optuma
Analysis of the Technology Sector
Chart Source: Optuma
Analysis of the Energy Sector
Data From OptumaChart Source: Optuma
LT Debt to Equity Ratio
✔ Price to Book Value✔ Return on Equity✔ Price to Sales✔ Free Cash Flow
✔ Price Trend✔ Price Trend Rate of Change✔ Chaikin Money Flow✔ Relative Strength vs. Market✔ Volume Trend
✔ Earnings Estimate Trend✔ Short Interest✔ Insider Activity✔ Analyst Ratings✔ Industry Relative Strength
Earnings Experts
Stock Selection: Fundamentals and TechnicalsLook For Leading Stocks in Leading Sectors
20-Factor Model
Buy the Dip: Cadence Design - CDNS
Data From Optuma
Chart Source: Chaikin Analytics
Buy the Dip: Cadence Design - CDNS
Data From OptumaChart Source: Optuma
Fade the Rally: Halliburton Co - HAL
Data From Optuma
Chart Source: Chaikin Analytics
Fade the Rally: Halliburton Co - HAL
Data From OptumaChart Source: Optuma
Chaikin Analytics, LLC, and its parent Chaikin Holdings, LLC (the “Company”) are not regis tered as a securities broker dealer or inves tmentadvisor with either the U.S. Securities and Exchange Commiss ion or with any s tate securities regulatory authority.
The Company is not respons ible for trades executed by users of their reports , analytics , web s ites or mobile apps based on the informationincluded herein. The information presented in the Company’s reports , analytics , etc. does not represent a recommendation to buy or sell s tocksor any financial ins trument nor is it intended as an endorsement of any security or inves tment. The information is generic by nature and is notpersonalized to the specific financial s ituation of any individual.The user bears complete respons ibility for their own inves tment research andshould seek the advice of a qualified inves tment profes s ional before making any inves tment decis ions . Pas t performance is no guarantee offuture results .The alerts and s ignals within the Company’s webs ite and products are for information only and should not be relied upon forinves tment decis ions . The Company shall not be liable for any los ses incurred as a result of either the accuracy or timing of the alerts . TheCompany is not affiliated with any other organization and is not respons ible for any losses incurred because of any errors or delays intransmis s ion of orders to the user’s account with any other organization.
Disclaimer CFTC RULE 4.41: Hypothetical or s imulated performance results have certain limitations . Unlike an actual performance record,s imulated results do not represent actual trading. Also, s ince the trades have not been executed, the results may have under or overcompensated for the impact, if any, of certain market factors , such as lack of liquidity. Simulated trading programs in general are also subjectto the fact that they are des igned with the benefit of hinds ight. No representation is being made that any account will or is likely to achieveprofit or los ses s imilar to those shown.
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