Most people know about "relative strength", Welles Wilder's RSI indicator, that is, but few people know that if you really want to measure "strength relative", you need to use a ratio chart. That's right, a ratio chart.
I did a quick google search and found 19,500 entries for "relative strength index", all of which were related to the indicator and 4,370 entries for "ratio chart", 99% of which had nothing to do whatsoever with the capital markets. This is bizarre. I guess the generic name is so long-forgotten that we have to invoke the name of William O'Neill and CANSLIM to jog the market's collective memory.
I thought it was appropriate to show you the ratio chart panel because last Friday's CNBC SquawkBack Poll showed that 67% of the voters believed that the Dow would get to 10,000 in December, and when we add the 24% who think that it will get there next year, that's a whopping 91% that believe that it will get there shortly. Is that bullish or is that BULLISH!
In this chart, we have plotted the Dow Jones Industrial Average and then compared it against a number of other benchmarks.
Why don't we draw some lines and take a closer look. We can see that over the past few days, the Dow has is starting to outperform the broad indexes such as the S&P 500 and the NASDAQ 100, and has really popped against the Semiconductors.
Oh no! Does this mean that only 30 stocks are leading the way? Yikes! Isn't that the narrowest advance? Or is the "weak dollar" doing wonders for the potential earnings of these multinational companies? I'm watching the Dow Industrials vs. the Gold Bugs. You just never know...
03.12.09 05:41 #