relative strength

Discussion in 'Trading' started by dafong, Aug 19, 2008.

  1. dafong


    Let's say there are 10 stocks in the same industry/sector. One stock is down 4% or so while the other 9 stocks are up 5%. Would you buy the stock that is down hoping that it would fall in line with the other stocks in its industry/sector or short it because it's an underperformer?

    Assume there is no news. Also the same question for vise versa where one stock up, 9 stocks down.
  2. Buy strength, sell weakness.

    Pretty much trading 101.
  3. Corey


    I would first ask myself the question, "How often are 90% of the stocks in a sector up significantly in the same time period..."

    In my experience? Not often -- which in and of itself is a rather powerful signal...

    As for the direction? I leave for you to do a bit of legwork on. Though, a bit of common sense (and perhaps a review of a binomial distribution ... or at least investor psychology) should lead you to the correct answer...
  4. Your question is too vague to be answered. I need a timeframe of trading. I need a 9 month chart of the stocks in the industry and a 9 month chart of the industry index. I need a 3 month chart. I need a weekly chart and i need a daily chart. After that i will be able to give you a very informed decision as to which stocks to buy and which ones to forget.
  5. dafong


    how about intraday?
  6. If that one down stock is Refco I'd short the hell out of it and never cover.
  7. OK intraday but i would also need to see all the charts as well. Anyways besides that i would say that there is a good amount of time companies in the same industry will stay together so i would say stick with the real trend and buy the ones that have gone up but as i said i need charts to actually make a successful trade.
  8. The stock is probably a dud.

    From IBD.

    37% of a stock's price movement is directly tied to the performance of the industry group the stock is in.

    12% is due to the strength in its over all sector.

    roughly half of a stock's move is due to the strength of its respective group.

    "How to Make Money in Stocks" O'Neil.

    Imo, IBD list some important points regarding RS of sectors and worth the read.