Case Studies of Relative Strength of a Stock
| Although we can not 100% for sure whether a stock that was relatively strong in the last week will increase or not, we do have more confidence to expect its up-movement in the next week comparing with its week peers. Similarly, a stock that has been relatively weak for one week is most likely keeps weak and decreases in near future. Therefore, we need to monitor the relative strength of a stock continuously just like we do to DOW. At first, let use get some feelings of what is a relative strength all about. |
| Dow 5/11/06, 5/12/06 |
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Relative Strength of ADP on 5/11/06 =0.738737 and on 5/12/06 = 1.085384, therefore, ADP is relatively “STRONG” with respect to the entire market. The followings are the daily charts of ADP on 5/11/06 and 5/12/06, observe that on 5/11/06 ADP decreased slowly comparing with the entire market while on 5/12/06, it increased while the entire market decreases. Based on this fact, we can make a reasonable guess with high confidence: on 5/15/06, if the market increases, then ADP will most likely increase faster than the market; on the other hand, if the market decreases, it will most likely decrease slower than the market. How confidence shall we be? The level of confidence depends on at least the data of relative strength in the last two weeks. |
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| Relative Strength of GG on 5/11/06 = -1.588527 and on 5/12/06 = -6.944004, therefore, GG is relatively “WEAK” with respect to the entire market. The followings are the daily charts of GG on 5/11/06 and 5/12/06, observe that on 5/11/06 GG decreased fast comparing with the entire market while on 5/12/06, it decreased very fast comparing the entire market. Based on this fact, we can make a reasonable guess with high confidence: on 5/15/06, if the market increases, then GG will most likely increase slower than the market; on the other hand, if the market decreases, it will most likely decrease faster than the market. How confidence shall we be? The level of confidence depends on at least the data of relative strength in the last two weeks. |
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