Watch For The Intraday Nonconformists
One of the most important tools in a trader’s arsenal
is relative strength. It’s a principle that you can use in any time frame,
although most traders are familiar with relative strength as it affects
intermediate-term trends.
Today’s huge swings in the Nasdaq gave us a number of very good examples of
how relative strength can be used in the intraday time frame.
Look at the charts of Vitesse
(
VTSS |
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PowerRating), Xilinx
(
XLNX |
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PowerRating), and Power-One
(
PWER |
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PowerRating), which were either positive or only mildly negative during the first
few hours of trading, while the Nasdaq was plunging to its lowest levels of the
year intraday.
During a nasty Nasdaq decline, you want to make a note of stocks that are
exhibiting strength. The following charts of Maxim
(
MXIM |
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PowerRating) and the Nasdaq
Composite
(
$COMPX |
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PowerRating) explain why.
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MXIM was positive within the first 30 minutes of trading. From that point
until about 12:30 ET, MXIM traded in a narrow range–still staying
positive–while the Nasdaq continued declining. MXIM’s defiance of weakness in
the overall market suggested that whatever was propping it up would potentially
kick in even stronger if the Naz staged a recovery.
In the past year, we’ve become used to these huge intraday swings in the Naz
and, indeed, today’s intraday bungee jump from the lows kept that tradition.
With that, there was nothing left to hold MXIM back and it took off when the Naz
came off its lows at 12:30 ET.
This very same principle applies to daily action. Watch for strong
divergences in strength between certain stocks and the major indices as a whole
over the course of several days–especially if those stocks are in the same
industry group. Let’s say the market is rallying sharply and these stocks are
neutral to slightly weak. In other words, they’re not feeding off the strength
in the overall market. You’ll want to watch for pattern setups on the short side
in these stocks if the market tops out and there’s nothing left to keep these
stocks from tanking. Keep in mind that I’m speaking in generalities here, as
there are likely to be myriad factors you’ll want consider in these stocks
to access their viability as short plays, but the principle is an important one
to keep in mind as you watch the market from day to day.
Want to know more? Check out Jeff Cooper’s recent Trading Lesson: “Finding
the Next Hour’s Winners Using Intraday RS.“
Till Tuesday,