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Monday, September 2, 2013

Long Term Relative Strength

On the weekend price relative scans, I post a table of stocks that have long term relative strength (the top 25) and starting in April, I began tracking stocks that were entering the list for the first time (those are the ones that I highlight in yellow). The theory was that those stocks were rising in strength would be more likely to outperform the market. I looked at the first 3 weeks of stocks to see what kind of results I got:
On the week of April 5th, I highlighted AVY, EAC, FLT, and HBI. Of these EAC had the best short term performance, but got whacked badly on earnings and has since vastly under performed the market. AVY has performed almost exactly with the market, while the others have slowly but steadily out performed the market.
The following week I highlighted ABC, RDN, and WAL. Of these, ABC performed about evenly with the market, WAL performed with the market for about two months, then took off, and RDN outperformed the market significantly in two time frames, with a nasty drop in between.

The third week highlighted PROV, SNTS, TWX, and UGI.  TWX slightly under performed the market, but UGI rather badly under performed, PROV under performed for about two months, then kicked it into gear and did very well. SNTS outperformed significantly but has since dropped sharply, although it is still miles ahead of the market.

The results so far are a little disappointing, although there are a lot of positives. For one, buying these looks like a low risk proposition: there were very few large draw downs, and other than EAC, none over 10%. This looks like it might work as a long term trading strategy; while it doesn't produce astronomical gains, it also looks like it is pretty low risk. I will continue tracking these to see how things change over time.

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