School Corner
There is another way to use relative strength and this method is based on the FTSE 100 direction. This is only relevant if the stock is positively correlated with the FTSE 100 (the stock and the index move in the same direction). When the FTSE 100 is undergoing a correction, towards the end of the decline some stocks will typically begin to show strong relative strength — this is a positive sign. Inversely, if the FTSE 100 has been rallying for a few months without any major pull back, check the stocks that are showing weak relative strength over the last week or two.
Shares in Land Securities rallied with the FTSE 100 from mid November. The stock peaked on 9th January but the FTSE 100 continued to rally. The relative strength is down in January; this is the first indication that the stock could be at the start of a more prolonged decline.
CHART - LAND SECURITIES
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58 | www.financial-spread-betting.com | February 2013