Why It Can Pay To Look Beyond Relative Strength
Relative Strength or RS as most
technicians refer to it, is a great tool for quickly identifying those issues
that are performing better than the broader market, but sometimes we have to
look elsewhere to find inherent strength. Quite often, after a stock
establishes 52-week highs, it might find itself consolidating for a period of
time. If the duration of this “contraction” in price volatility lasts
for more than a couple of months, there’s a chance that the stock’s RS, as
determined by the 3 Month ranking, might miss the issue as it finally breaks
free, right as it’s going on to establish fresh highs, and potentially an
extended run to the upside.
One such issue that showed durability well before
our 3 Month RS figure ever triggered above the 80 figure was a little company
called eBay. As a matter of fact, in the Nightly Daytraders Report, eBay was the
first listing ever in our Institutional Favorites category, well over 3 months
ago, and well before the RS got a hold of the stock. It was a classic at the
time, as the stock went on to score gains of over 3 points that very next day.
Only time will tell what the next eBay will be,
but in the interim it’s our job to try to find them ahead of the pack.
12:06:58
Intraday
Setup Alert
SLM Corp. (SLM)
is close to triggering out of a High level Daily Slim
Jim pattern. The stock maintains a 3 Month RS of 70, so it might
have escaped your radar until now since we usually look for rankings above 80.
But, with an Uptrending
ADX of 24 to complement its rise higher, along with the fact that this one
is .40 from 52-Week Highs (as well as pattern breakout levels) SLM might just
deserve some space on your trading screen. SLM is currently triggering session
highs at 112.75, up 1.83.
With SLM, we have an example of a slanted triple
top being tested. Over the last 5 months we have had three new 52-Week Highs
established. With approximately 2.5 months between highs, the stock has had a lot
of time to consolidate. This is great action as it forms a high level base from
which to trade out of. Unfortunately, if you only concentrate on one set of
numbers, you might end up missing out as this “Student” goes to the
top of the class.
The moral of the story is to keep tabs on both
price action against a universe of stocks (RS), as well as those issues taking
“their sweet time,” as you might just be looking at a new relative
strength leader.