Recommended Reading

Google Search

Charts courtesy of

Tuesday, October 28, 2008


SYUT was the big gainer on the earnings list, and while it was positive all day, it made the bulk of this move late. I wonder how many people jumped into short positions the last few days as it was breaking down to new lows.


Anonymous said...

hey David how are you. I noticed you just started posting. So what do you think? Do you believe it or not? Me and my puts don't. But that could just be wishful thinking. Would it be possible for you to post something on the DIA, as that my friend and I read you every day. Also could you post an analysis of a major sector that is having major weak relative strength. I try to follow your logic when you explain relative strength for stocks on the long side, and then I try to flip it around and apply your analysis or RS to stock I want to short. So it would be nice if you could show us one with weak RS. I was thinking that I could catch some sector or stock that is diverging; that is trending sideways or going up but its RS has a downtrend. I read in a book by John Markman that these are great places to short, especially in a bear market. For example, my thesis is that if this bear market goes on any more there will be some industries, like the consumer credit companies that will tank even more ( people will start defaulting in their credit cards) than the broader market. So as its happening I want to put a 13 and 34 week MA on the RS line and wait for a crossover to signal a move down in this industry. Thats kinda of what I learned in this book. And the only place Ive found that discusses RS in these terms is your blog. ( As youve noticed by now, most of my question have been about RS).
Sorry about all the question, but Ive noticed your pretty cool about taking requests. Also Ive gone to other blogs and pay sites and yours is the only one that really talks about RS, which makes the most amount of sense to me as a novice trader.Ive gone to stockcharts and it kinda covers it. But to really have a comprehensive look at the RS of all sectors and industries, I think Im going to have to build them myself in a database of RS charts for every single industry, so that I can watch them all and correlate their movements to broader economic trends and then hopefully catch moves to the upside or downside early. I would like this to be the foundation of my system. Its going to a combination of technicals and macroeconomic fundamentals. (And maybe a dash of geopolitical trend analysis). So before I begin this labor intensive work, I was hoping you could give me some input ( especially when it comes to analyzing RS charts. May be you know some place that already does have all these charts.) You sent me to IBD once but you did tell me I had to pay for something similar to what Im looking for. And I dont think they do work for weak RS to help you short.
In any case I would love to get your thoughts on this, as that youve been a good source.
Eddie B

David said...

Hi Eddie,

Good to hear from you again. Unfortunately I am usually off the internet on Tuesday nights and had to log off soon after my post tonight. About the rally today, this is typical of bear market action. However, rallies in bear markets can be more violent to the upside than bull market rallies. If this one gets some legs it could last a couple of months. A lot depends on how Bernanke handles the deflationary spiral we are in now. If it continues, it will kill any rallies.
One problem with using the term "relative strength" is it can cause confusion with the Relative Strength Index (RSI). Stockcharts uses the term "price relative", but I'm in the habit of callling it "relative strength" and it's going to be hard to break. It is to me the most useful of all technical indicators. It can be used to find weak stocks and sectors as well, just look for a line that is trending down when price is trending up (it's easier to find divergences when the market is counter-trending, for instance, rallying in a bear market). One of my projects was to build a database of the IBD industry groups to find relative strength and weakness of each group, but since I have trouble getting IBD lately, I have killed that project off, but may try something similar with Zack's industry groups. Stockcharts has charts for various industries (you can use the search function in the symbol catalog page). That is pretty time consuming. Probably the best way to track industries is to use Telechart, which is a pay program, but is reasonably priced if you only use end of day data.

I hope I answered your questions, unfortunately some days I don't have much time, but most days I do. I don't have time to do a chart right now, but I should be able to post DIA in the morning. As far as what I think is going to happen, I heard a saying once that made a lot of sense, "Lose your opinion, not your money". You have to trade the market you get, not the one you think you should get.

Google Analytics