Is the Stock's Relative Price Strength Below 70?

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Is the Stock's Relative Price Strength Below 70?

Here is a simple, easy-to-remember measure that will help tell you if a security is a leader or a laggard. If the stock's relative price strength, on a scale from 1 to 99, is below 70, it's lagging the better-performing stocks in the overall market. That doesn't mean it can't go up in price, it just means if it goes up, it will probably rise a more inconsequential amount.

Relative price strength normally compares a stock's price performance to the price action of a general market average like the Standard & Poor's (S&P) Index, or in some cases, all other stocks. A relative strength of 70, for example, means a stock outperformed 70% of the stocks in the comparison group during a given period, say, the last six or twelve months.

The 500 best-performing listed equities for each year from 1953 through 1993 averaged a relative price strength rating of 87 just before their major increase in price actually began. So the determined winner's rule is: Avoid laggard stocks and avoid sympathy movements. Look for the genuine leaders!

Most of the better investment services show both a relative strength line and a relative strength number and update these every week for a list of thousands of stocks. Relative strength numbers are shown each day for all stocks listed in the Investor's Business Daily NYSE, AMEX, and NASDAQ price tables. Updated relative strength numbers are also shown in Daily Graphs
charting service each week.