Count Relative Strength Days To Identify Leading Stocks

Count Relative Strength Days To Identify Leading Stocks

Stocks exhibiting relative strength during market corrections continuously outperform other stocks.

When screening and monitoring your watchlists, you should always consider how the action of an individual stock is compared to the action of the indices and other stocks.

This blog will show you how tracking days when a stock displayed relative strength will help keep you focused on the strongest-performing stocks.

  • Identify Outperformance
  • Focus On Momentum
  • Catch Trends

Why Relative Strength?

Relative Strength is based on the principle that a stock in high demand will show strong price performance compared to the overall market and other stocks.

During sideways markets or more severe corrections, large institutions will take advantage of cheaper stock prices and continue to accumulate the best stocks. During these weak market periods, institutions add to their highest conviction ideas for the next market trend.

Relative Strength is a subtle clue that can be used to help zero in on stocks with institutional interest.

Counting recent days in which a stock displayed Relative Strength will guide you to the strongest stocks. Use this number to identify positive price performance and stay on top of emerging market themes.

Relative Strength Days

As the name suggests, Relative Strength Days (RS Days), are days in which a stock is showing relative strength compared to the broader market.

When analyzing a stock's daily performance always consider how the price moved compared to the action of the indices. As you monitor the individual stocks during a market correction, look for stocks that performed better than the market.

Higher Low As The Market Makes Lower Low

Up On Down Days

High DCR When Market Closes Near Lows

New High As Market Makes A Lower High

Outperformance Vs. Others

Inside Day When Market Makes New Low

As you routinely update your watchlists, track the days in which individual stocks exhibit Relative Strength. Tally RS Days as the market shows signs of pressure and begins a corrective state.

Counting RS Days

Counting the number of RS days allows you to uncover patterns or emerging market themes.

Stocks that exhibited the highest number of RS days from when a market goes into a corrective pattern, are potential leadership stocks you want to focus on when the market turns.

Stocks with >60% RS days during a correction are potential new leaders.

These are the stocks that refuse to give up. During corrective market conditions, each RS Day is a subtle clue that institutions are continuing to accumulate stock.

When multiple stocks with the highest RS Day count emerge out of the same industry, these groups are potential new leadership groups.

  • Industries that collectively stack RS days in unison are potential new leading groups.

Once the pressure is relieved off the general market, the stocks, and groups, that held up the best will be the first ones to make new highs as they lead the market higher.

Your core positions, as you build your portfolio after a correction, should reflect the groups and stocks that showed the highest RS during the corrective phase.

Examples

To count RS Days effectively, you will need to change from a simple RS Line to Candlesticks so we can accurately count the individual days.

When the close of on RS Candlestick is higher than the previous day's close, we count that as one RS Day.

Symbol: CRWD
Company:
CrowdStrike Holdings
Year: 2023

Count Relative Strength Days To Identify Leading Stocks

When the market began to correct in August of 2023, CRWD showed signs of strength as it built a base with higher lows while the market made lower lows. CRWD broke out and made new highs while the market went lower into its third leg down.

Here we counted 43 days in which CRWD outperformed the market during a 67-day correction.

When counting RS days we see that CRWD outperformed the markets over 60% of the time during a downtrend. CRWD led the market out of the correction and went on to move 100% in the next three months.

Symbol: WING
Company:
Wingstop
Year: 2023

Count Relative Strength Days To Identify Leading Stocks

During the same three waves down correction in the Fall of 2023, WING began displaying Relative Strength as it made higher lows while when the market made lower lows. When the pressure was relieved off the general market, WING took off and began making new highs before the market.

Wing had 41 RS days within the same 67-day correction.

Again, we can see that WING outperformed the markets over 60% of the time during the downtrend. At the same time, other stocks in the restaurant group outperformed the market. RS days plus group strength helped WING advance 100% in just over four months.

Symbol: TMDX
Company:
TransMedics
Year: 2024

Count Relative Strength Days To Identify Leading Stocks
Count Relative Strength Days To Identify Leading Stocks 13

More recently the S&P500 corrected through time only dropping roughly 6%, while TMDX consolidated near its previous highs. As the market finally found a bottom and began to recover, TMDX was already breaking out and making new highs.

TMDX showed 15 RS Days while it outperformed the market during a quick and shallow 22 day correction.

During this correction, TMDX outperformed the markets over 65% of the time. Traders are currently viewing TMDX as one of the leaders of the next market uptrend.

Symbol: ZM
Company:
CrowdStrike Holdings
Year: 2020

Count Relative Strength Days To Identify Leading Stocks

The COVID correction of 2020 saw extreme selling pressure as most stocks fell way off their highs. Meanwhile, ZM exhibited Relative Strength as it began making new highs.

ZM displayed 19 RS days as it outperformed the market during a 31-day correction.

ZM outperformed the markets over 60% of the time during a major market selloff. ZM led the market out of the correction and went on to move 300% in the next six months.

Deepvue Chart Setup

1. Add the Relative Strength Line Indicator to your chart

Count Relative Strength Days To Identify Leading Stocks

2. Move the RS Line Indicator to a New Pane Above. Right-click the RS LIne Indicator at the bottom of the price chart.

Count Relative Strength Days To Identify Leading Stocks

3. Change the Relative Strength Line Plot Type to Candlesticks

Count Relative Strength Days To Identify Leading Stocks

4. Uncheck all other unwanted settings leaving only RS Candlesticks checked.

Count Relative Strength Days To Identify Leading Stocks

The Relative Strength Line can now be used as a means to count RS Days.

Deepvue Columnset Tracks RS Days

Deepvue makes it even easier for you by counting the RS Days for you. This data can easily be viewed and sorted in your column settings.

Count Relative Strength Days To Identify Leading Stocks

During market corrections, add Relative Strength Days into your columnsets to see which stocks are outperforming the market.

Count Relative Strength Days To Identify Leading Stocks

Sort by RS days to see which stocks are leading.

Screening For RS Days

As with any indicator available in Deepvue, you can also screen for Relative Strength Days.

When a market is in a corrective phase use RS Days in your screens to focus on the stocks holding up better than the market.

Count Relative Strength Days To Identify Leading Stocks

Deepvue also has many Screener Presets (LINK) available to help make screening easier. Implement this screen in your routine search for the strongest stocks.

Remember: Leading stocks have Relative Strength Days >60% of the time during market corrections.

Putting It Together

When the market is experiencing pressure in a downtrend, the stocks that are holding up relative to the market, are doing so because institutions are not willing to sell these stocks. When the market is correcting, watch for stocks that exhibit strength compared to the index and other stocks.

To achieve super-performance you need to identify which stocks institutions are accumulating. As pressure is relieved from the market and an uptrend resumes, the stocks with the most RS Days will continue being accumulated as the price is driven higher.

When everything in the market is being sold, the individual stocks or groups that continue to exhibit Relative Strength Days are the potential new leaders. Stocks that outperform the general market consistently during downtrends, will generally outperform the markets when an uptrend resumes.

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