I have keenly followed the relative strength analysis over time.It helps in getting the "big picture view" of the Stock Markets
Below are some charts which have been bothering me for months now.They are relative strength charts of NTPC and Nifty.During the bear market lows NTPC started to outperform Nifty in a huge way (we can see clear divergence in chart during that period (October 2008-March2009)).However as the pessimism vanished we can see that Nifty recovered very sharply while NTPC during the same time became an underperformed
Although I neither traded nor made any investments in NTPC(may be because of the pessimism around) Looking back now makes me all the more uncomfortable.If I had made an investment in NTPC back then,the stock would have tested my patience like anything. At least we expect to be in a stock that outperforms the index in some way.
I came across "The Rebel's" blog recently as he tracks relative strength movement quite closely, he might be able to provide useful insights into this pattern,and how to filter some of these non performing trades.I would request other people, who follow NTPC to comment as well,I may have missed some news all this while, that stopped it's progress.
Cheers
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Hi Anuj,
ReplyDeleteApart from visual comparison, we need to have a method which can quantify RS on a regular basis.
1. Divide the weekly % gain of a stock by the weekly % gain of the benchmark index (Nifty).You need at least 2 years of data.This will give you a long term perspective.
2. Repeat the above for daily values.
3. Top down analysis will help - ie; using the above method, find out strong outperforming sectors and then find the strongest stocks within the strongest sectors.
4. I can send you the details on how to do step 1 and 2 in Excel but I need to have your e mail id.
Thanks and ATB
@ The Rebel
ReplyDeleteThanks for your reply
NTPC above would have given a good relative performance on weekly as well as daily basis if we calculate backwards from March 2009
Finding the best withing the sector is a good idea...I do that usually..but whole power sector went completely dead once bull market started.Some kind of sector rotation happened I guess..from power money got allocated to technology and autos..
I will study this in more detail and let you know if there are any issues
you can send me the files at
anujjoshi.aj at gmail dot com
Cheers
@ The Rebel,
ReplyDeleteCan you pls send the file to me as well. My e-mail i.d opgveer@gmail.com
Regards,
Veer