Momentum analysis of Relative Performance is one of our favorite ways to measure a stock’s health. A stock that holds its value during a declining market often soars once the market turns higher. In a strong bull market, most stocks will rise, even the stocks of weak companies! But to find the best companies with the strongest stocks, you can analyze the RP lines.
When a Relative Performance line is moving upward, the stock is outperforming the market. When it’s moving downward, the stock is underperforming the market. A flat RP line indicates the stock’s performance is equal to the market’s.
In general, we like to see a minimum of 13 weeks of outperformance (an uptrending RP line) before we consider buying a stock. Once this condition has been met, we conclude the stock has positive momentum. If a company has a compelling fundamental story and strong positive momentum, it’s a candidate for purchase.
What constitutes strong momentum? When a stock has a powerful RP line, its corrections will be brief, lasting just a week or two. The longer the Relative Performance correction, the weaker the situation. There’s nothing more positive than an RP line that’s hitting new highs!
In general we’ll consider selling a stock if it underperforms the market for eight weeks or longer. But there are other considerations. How deep (or shallow) has the correction been? Has the stock been declining on heavy trading volume (a big negative)? Is it holding up in an area of price support? Relative Performance analysis is extremely important, but it’s not done in a vacuum. There are other considerations.
Interpreting Relative Performance lines is as much an art as it is a science. But to any serious investor, it’s worth the effort. It gives you the conviction to stay with a stock rather than selling for a quick profit. It helps you identify the strongest stocks in both weak and strong markets. And it gives you advance notice that a stock is weakening.
To learn more, download our FREE report, Technical Analysis of Stocks: How Relative Performance Works, Why Trading Volume is Important, and Other Chart-Reading Lessons.
As we continue to balance the pursuit of opportunities with the desire to preserve capital/current gains we’re intently focused on stocks that are breaking down to new lows. Today we’ll take partial profits on another name and step completely away from one stock.
Read More
This week certainly wasn’t the maelstrom last week was, but after a promising bounce following Monday morning’s wipeout, the sellers have come back around for things—on the week, the major indexes are lower, though the declines aren’t horrific, especially for broader indexes like and...
Read More
People often overlook silver as a safe haven in volatile markets. But the best-performing silver stocks tend to rise faster than gold stocks.
Read More
Well, 2021 is in the books, which we’re happy is the case, as it was far from a fruitful growth stock year—effectively payback for the amazing 2020 environment.
Read More
Both Sprout Social (SPT) and Kornit Digital (KRNT) have made fresh lows today so we’re going to take partial profits by selling one quarter of each position.
Read More
It continues to be a very bumpy ride for small-cap growth stocks, while those names with a slightly more value-oriented profile are providing a somewhat smoother ride. Big picture, there is no doubt the risk-off environment continues. The good news for more aggressive is...
Read More
There is this widely held belief that January is a great month for investors. But I always throw cold water on this claim because the fact is, over the past 25 years, it’s been one of the worst months for stocks.
Read More
Relative Performance (RP) measures how a stock is performing relative to a specific index and is a good sign of strength or weakness.
Momentum analysis of a stock’s Relative Performance is one of our favorite ways to measure a stock’s health. A stock that its...
Read More
So far, 2022 is playing out as expected. But of course, this is only the eighth trading day of the year.
Read More
In a recent update, I used the phrase, “It’s always darkest before the dawn,” as I reasoned that the marijuana sector’s dreadful performance in 2021 was likely the prelude to a well-deserved rebound in 2022. And the news is still pretty dark.
Read More
The world has undergone a massive disruption over the last two years. Such events almost always create opportunity. The global pandemic hit the world like a meteor. The ensuing lockdowns crashed the economy overnight. And the end of those lockdowns revived the economy as...
Read More
Stock Recommendation Tracker
The Stock Recommendation Tracker is a table that features all of the current recommendations in all of our portfolios. It’s a quick way for you to see what stocks are currently in our portfolios and will highlight new additions or any to...
Read More
Stock Recommendation Tracker
The Stock Recommendation Tracker is a table that features all of the current recommendations in all of our portfolios. It’s a quick way for you to see what stocks are currently in our portfolios and will highlight new additions or any to...
Read More
The market meltdown is continuing today, and while it’s being led by growth stocks, the selling is spreading out to every nook and cranny of the market—as of 12:30 eastern, the Dow is down 511 points while the Nasdaq is cratering another 350 points.
Read More
With so much uncertainty in the market, today I want to discuss my five commandments for selling short - before you need to use them.
Read More
The market started out lower this morning after a worse-than-expected jobs report. As of 11:30 am, the Dow is down just 14 points, but the Nasdaq is off 130 points and growth-oriented indexes are down another 1% to 2%.
Read More
Well, the market’s small dose of good action for the second half of December was mauled by the bears this week—all indexes are down at least somewhat, and among growth-oriented titles from a variety of sectors (tech, cybersecurity, solar, software, retail, you name it’s...
Read More
Stock Recommendation Tracker
The Stock Recommendation Tracker is a table that features all of the current recommendations in all of our portfolios. It’s a quick way for you to see what stocks are currently in our portfolios and will highlight new additions or any to...
Read More
Stock Recommendation Tracker
The Stock Recommendation Tracker is a table that features all of the current recommendations in all of our portfolios. It’s a quick way for you to see what stocks are currently in our portfolios and will highlight new additions or any to...
Read More
Canada's stock market has lagged behind the U.S. and emerging markets, but these three Canadian blue-chip stocks are bucking that trend.
Read More
