Pick 80s and 90s That Arc in a Chart Base Pattern

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Pick 80s and 90s That Arc in a Chart Base Pattern

If you want to upgrade your stock selection and concentrate on the best leaders, you could consider restricting your buys to companies showing a relative strength rank of 80 or higher. Establish some definite discipline and rules for yourself.

If you do this, make sure the stock is in a sound base-building zone (proper sideways price consolidation pattern) and that the stock is not extended (up) more than 5% or 10% above this base pattern. This will prevent you from chasing stocks that have raced up in price too rapidly above their chart base patterns. For example, in the Reebok chart shown at the end of Chapter 3, if the exact buy point was $29, the stock
should not be purchased more than 5% or 10% above $29.

If a relative price strength line has been sinking for seven months or more, or if the line has an abnormally sharp decline for four months or more, the stock's behavior is questionable.

Why buy an equity whose relative performance is inferior and straggling
drearily behind a laige number of other, better-acting securities in the market? Yet most investors do, and many do it without ever looking at a relative strength line or number.

Some large institutional portfolios are riddled with stocks showing prolonged downtrends in relative strength. I do not like to buy stocks with a relative strength rating below 80, or with a relative strength line in an overall downtrend.
In fact, the really big money-making selections generally have a rela-live strength reading of 90 or higher just before breaking out of their first or second base structure. A potential winning stock's relative strength should be the same as a major league pitcher's fast ball.

The average big league fast ball is clocked about 86 miles per hour and the outstanding pitchers throw "heat" in the 90s. The complete lack of investor awareness, or at least unwillingness, in establishing and following minimum realistic standards for good stock
selection reminds me that doctors many years ago were ignorant of the need to sterilize their instruments before each operation. So they kept killing off excessive numbers of their patients until surgeons finally and begrudgingly accepted studies by a young French chemist named Louis Pasteur on the need for sterilization.

It isn't very rewarding to make questionable decisions in any arena. And in evaluating the American economy, investors should zero in on sound new market leaders and avoid anemic-performance investments.