When determining how to manage a market correction, one of the first things you need to consider is how each of your holdings has performed over the correction period. In order to arrive at this assessment, we examine relative strength.
Relative strength measures the performance of a security versus an appropriate index over a given time frame. When we see a security that is performing worse than the given benchmark or index, we say that it is underperforming. When we see a security that is performing better than the given index, we say that it is outperforming.
While relative strength is often very useful for trading purposes, its utility diminishes during a stock market collapse. Often during a collapse, most securities that have outperformance eventually lose their performance edge. It was for this reason that I advised readers to look first to sell their winners in the market forecasting section.
This article continues.
To continue viewing this entry please sign in to your Client or Member account.
Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher.
These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.
Article 19 of the United Nations' Universal Declaration of Human Rights: Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.
This publication (written, audio and video) represents the commentary and/or criticisms from Mike Stathis or other individuals affiliated with Mike Stathis or AVA Investment Analytics (referred to hereafter as the “author”). Therefore, the commentary and/or criticisms only serve as an opinion and therefore should not be taken to be factual representations, regardless of what might be stated in these commentaries/criticisms. There is always a possibility that the author has made one or more unintentional errors, misspoke, misinterpreted information, and/or excluded information which might have altered the commentary and/or criticisms. Hence, you are advised to conduct your own independent investigations so that you can form your own conclusions. We encourage the public to contact us if we have made any errors in statements or assumptions. We also encourage the public to contact us if we have left out relevant information which might alter our conclusions. We cannot promise a response, but we will consider all valid information.