Start Finding Stocks With Relative Strength

This week the major stock indexes have all plunged into negative territory for the year. The current corona-virus scare has been the main catalyst for the decline, but there are other factors that are causing it as well. Many investors are now looking at Democratic front runner Bernie Sanders as a very negative market sign for market. Then you have many fragile economies in Japan and Europe, both have negative rates. If you follow this up with an inverted yield curve it makes a perfect elixir for a major stock market decline.

As many professional traders and investors know, a good stock market decline leads to very good buying opportunities eventually. This is where you want to isolate relative strength in the market. You do this by looking at stocks that have not fallen as much as the major stock indexes. For example, if you are searching for relative strength stocks in the Dow Jones Industrial Average (DJIA) you are looking for stocks that have not declined as much as the DJIA has so far. At this time, the DJIA has declined lower by 5.11% this year. Now go through the list of names in the DJIA and see what stocks have fallen by less than the DJIA has this year. That is a very easy way to find relative strength in the market. When the markets do bottom or even stage a short term rally it will often be the stocks with relative strength that rally the most. Either way, relative strength stocks are going to be the most solid names to own or even hold in this environment.

You don’t need to buy relative strength stocks at this time. This should be a time for traders and investors to compile a list of stocks that are showing relative strength. Even if this recent decline was the start of a bear market there will be bounces along the way. Some of the best rallies in stocks occur during bear markets or bear phases. This is usually due to short covering in the market place. When you see forced buy-ins taking place in stocks that can rally them higher than most people believe possible. In fact, a fair case can be made that this is exactly what has taken place in the market since the 2009 lows. At this time, start finding stocks with relative strength and wait for a bottom to be formed. This list will reward you in the near future.

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