Here is some interesting, and apropos, commentary regarding relative strength from securitytrader.com last weekend...
We continue to see people speak about relative strength. Relative strength is a term used to compare the performance of one stock or sector against an index or the market in general. For example if a stock you are watching is up 15% and the market is up 5%, the stock is said to have good relative strength. We can only suggest that over the past 15 months that relative strength has meant only one thing......its meant that your stock has not been taken behind the barn and shot yet. We will not do any finger pointing, but one of the leading technical analysis companies had suggested that Oil and Oil service stocks were a great place to park some money...it was a safe haven so to speak since its relative strength over the past 12 months was outstanding. Fast forward about 5 months and you are down 30% in the sector and 50+% in many individual stocks. Relative strength meant NOTHING here. There are just countless examples of this type of action. SUNW, EMC, CSCO, ORCL, all had GOOD relative strength while the NDX was pulling back hard in early 2000.......it was just a matter of time before they were taken behind the barn and shot. Or how about the CIEN, JNPR, BRCD, BRCM's of the world which had outstanding relative strength until around October of 2000 (a full 7 months after the NDX peaked). Had you bought that relative strength you could be DOWN as much as 77% in CIEN, 89% in JNPR, 87% in BRCD and 92%. So......do NOT think relative strength is all its cracked up to be. Its a LAZY persons way to think they can beat the market by buying good 'relative strength' sectors or stocks....so don't hang your hat on it.
Regards, and good trading,
JM |
