Daily Nonconformists
I thought I’d continue on the theme of relative
strength standouts in Tuesday’s “Chart of the Day.” Little did I know that the
market would hand my subject to me on a silver platter today.Â
Before I get to today’s chart, let me state that when I refer to relative
strength, I’m looking at it in a different way from most traders and investors.
Typically, when traders refer to relative strength they’re look at a ranking of
stocks that covers a specific period of time. There are different mathematical
formulas that are popularly used. However, I’m not looking at relative strength
in a quantitative sense. I’m look at it in a visceral, more visual standpoint.
I look at price charts of individual growth stocks to get a sense for how
they’re diverging with the Nasdaq. It’s not just an issue of a stock behaving
more strongly than other stocks within in a given universe. Rather, it’s more an
issue of how blatantly and boldly the price action I see on a chart just
virtually ignores what’s going on in the overall market over an extended period
of time.
I like to see a stock trending up steadily while the market is trending down
steadily–the two forming almost mirror images of each other.
Emulex
(
EMLX |
Quote |
Chart |
News |
PowerRating) is a good example of this.
During the past three months, EMLX has been on a steady trek up
while the Nasdaq has exhibited profound weakness. Any positive action in the Naz
(as we had Tuesday) would only serve to support EMLX even more.
Added on top of EMLX’s good relative strength profile is the fact
that its patterns are just about all you could ask for. In this case, we had a
follow-through off a bounce from its 50-day moving average, a three-month
trendline, and the level of its October 19 breakout.
This as good as they get.
See you Wednesday,