I imagine using the OEX would approximate the 100 largest SPX stocks to a degree.
For an analysis such as that, I imagine the easiest way to compute RS may be to take the daily change in the price of the individual underlying and divide it by the population.
for example, the %Change in GE divided by the %Change in SPX.
Nope. I suppose this is going to require a lot of thought. Perhaps it would be a running RS for a time, such as a year or a quarter, of the price of the underlying divided by the price of the population. I wish I was technically proficient enough to place a graph on a website to display what I'm thinking of. I have such graphs; but to explain it in words isn't as clear, I am afraid.
As far as Volatility, we would have to experiment with the number of trailing bars to get the best results but perhaps a trail of 10 days would be a good start.
Another manner of selecting the proper mix may be via sector analysis. Utilizing a greater weighting to issues present in sectors that are more volatile than others, Tech and Finance over Auto and Retail for example. Again, that would be a malleable variable.
The indicator would have to be fluid. At times it would be better to overweighted in SOX, at other times overweighted in BKX, at other times DOT.
I suppose it's not an easy thing to create, mostly because it would have to be reviewed on a regular basis with the view of validation of the internals.
Now that I've run through all this gibberish, I suppose the idea I would pursue would be to focus on those stocks which fall in the High Cap, Low/High RS category. Then alter the list periodically, probably on a time frame no longer than weekly. The issue would be to create the RS based on the relationship of the Equity's price movement as a function of the price movement of the SPX. |
