One might argue that institutions ARE the market. So, if we follow the relative strength of price trends at the index, sector, industry and individual company-competitor level and compare price moves to the movement of SPY, our sleuthing can give us a sense of how investments are likely to trend over time and in comparison to many other investment choices. It's sort of like grading on a curve, we're not just looking for assets to increase in value, we're looking for larger price increases than average and lower odds that a stock will reverse in price. The result of our analysis is to identify investment opportunities likely to reverse or continue rising in price. It's a systematic, repeatable and consistent way of anticipating price moves ahead of time. Nope, it's not a divining rod. Simply a way of comparing patterns of relative price movement that give the investor an edge over another trader, who might simply be flipping a coin to determine his or her posture on a particular security.
Our macro-Monday video will cover this week's relative strength analysis in greater depth. Once you've watched that, come back to the table below and try analyzing the market yourself by following the strength via the path I've laid out below:
- Start by looking at the snapshot of Global Macro ETF's. It's the very top of our long funnel for relative strength analysis. Notice that SPY ranks third in our sweet-spot 60 day time frame for evaluating relative strength trends. In addition, price performance of SPY has been strongest in each of the three most recent lookback periods on our relative strength trend chart. (All of these numbers simply reflect how each assets ranks in comparison to the other for price strength). Bottom Line: US Large Cap Equities are among the strongest in comparison to stocks in other regions around the globe and to other asset classes such as currencies and commodities.
- Now, let's find out what's driving US global relative strength. Let's see which sectors of the American economy are the strongest relative performers. Patterns would suggest there's been vasciallation recently, with energy, communications, financials and real estate being whipped around by bond market, interest rates and recent dollar strength leading commodity sell off. Many of these sectors are likely to firm - they'd increased quite a bit prior to this period of consolidation - but I'm a trader looking for an edge today.
- Tech had been a relentless US market leader for months until its recently completed intermediate correction. Notice XLK hangs in there at 4th RS Rank in our sweet spot 60-day lookback period. The 70-day, 80-day and 90-day lookback periods place XLK in the top 3rd of the stack, and these are our crucial lookback periods for our style of weeks-to-months trend following. Notice the relative strength rebound that's taken place. Not only is XLK outperforming SPY and ranked first in the two most recent relative strength lookback periods - 10 day and 20 day, but it's also bullish in multiple timeframes according to our short, medium and longer term exponential moving average relationships. RSI confirms bullish strength at a 67.59
- Let's dive deeper. Take a look at US Subsectors. Here, I draw your attention to semi-conductors (XSD) and innovative tech (XITK). Neither look especially attractive in the 60 day RS rank, and, in fact, the air had been seeming out of the tires on both ETFs long before price corrected. It would be perfectly reasonable to disqualify tech from considerations because of its key industry group relative weakness. I'm going to take a different viewpoint however, and use recent relative strength as a confirming indicator along with tech's recent breakout move, effectively reversing its breakdown. (More in the video). Both tech industry groups have coming roaring back, as Top-3 realtive performers in the most recent 20 day period. The ETF's have reversed their intermediate downtrend, and in our experience, failed breakdowns tend to be accompanied by outsized moves of extreme magnitude in the opposite direction. So, despite tepid RSI scores and inconsistent trend scores, the preponderance of the data suggests a good opportunity following this outsized sell off.
- I'd completely understand if you are not with me on this. My second relative strength idea would be to focus on Consumer Discretionary and in particular the top two overall industry groups Homebuilders and Retail. So, I've included a relative strength analysis of liquid consumer discretionary stocks below. Lowes and Home Depot look incredibly strong, albeit a little picked over with buyers at this point. Starbucks looks like a name that's returning once again to a dominant relative strength trend, with multiple time frames of bullishness and an RSI score above 60. Only neutral rated, SBUX finally blipped to the positive side of money flow and hasheld its 6 month relative strength superiority over SPY despite consolidation that's been going on since Thanksgiving. It's extended in the short run, but deserves a place on the watchlist, particularly if earnings and post Covid outlooks are better than expected.
- Back to tech. I laid in the Relative Strength chart of liquid tech stocks. You can also click near Most Liquid US Tech to open up the list in a separate window.
- Innovative tech symbol NXE (Chaikin rates in Neutral, but in a trong industry group, with confirming sold relative strength rating and positive money flow) is in an interesting ascending triangle technical pattern. A break to the upside portends a virtual doubling of price, following price pattern norms when setting a target.
- GGB appears to have broken of and retested a cup and handle pattern with a possible 20% price move ahead of it. Relative strength, price trend, money flow and RSI all strong. This appears poised to run after a long consolidation. It's an ADR, so more company risk that what's listed on our exchanges that operates between our shores.
- Would love your feedback. Does this Relative Strength Work augment the analytical tools provided by Chaikin? Would love to know if you see value in these tables. I was thinking about charging a reasonable $5.99 a month for a set of tables like the below delivered to inboxes on a weekly basis. Sector, Sub-sector, Global Marco, Commodities and Currencies, International Equities, and highly liquid, optionable symbols. What do you think? Drop me a line at email@example.com. Your honest opinion matters to me, and any feedback you provide stays between us. By all means, call the baby ugly!