Relative Strength Trading


Junior member
44 7

In order to gauge the market’s strength, I calculate the percentage of bullish stocks in some important indexes. I then plot these percentages along with the SPY that I use as a benchmark. This allows me to see two things:
  • If the percentages of bullish stocks are going up or down
  • Which indexes have higher percentages, which means that are relatively stronger than the others
The graph below shows the percentages of stocks that are bullish in the S&P100, 400, 500, 600, and NASDAQ100. It also shows the SPY for comparison.


We can see that, while the SPY hasn’t moved much in the last ten sessions, from 468.93 Monday, November 11 to 468.89 on Friday, November 19, the percentages of all indexes have fallen sharply from roughly 75% to 50% on average.

I noticed the same bearish divergence in a similar graph where I measure the percentage of bullish stocks in the eleven US Sectors.


The percentages of bullish stocks in all eleven Sectors, with the exception of the - very defensive - Utilities Sector, are declining sharply, despite the fact that our benchmark, SPY, hasn’t moved a lot in either direction. In fact, the dotted line, which is the average of the Sectors’ percentages, moved from 58% to 35% in the last five trading sessions.

Whenever this bearish divergence occurs, a decline in the stock market usually follows. Most of the time the divergence is much smaller and the corresponding decline is equally small.

This means that, while the SPY, which follows the S&P500, the most representative Index, in my opinion, moves more or less without a trend, more and more stocks in all major indexes and almost all sectors turn from bullish to bearish. This weakness will sooner or later become evident in the stock market in general.

I’m wondering what will happen in the next few sessions. Of course, there are no certainties in the stock market, but I closed all my positions.

Just in case.

Please send me your opinions - especially the negative ones!


64 6
The real short trends are on the weekly charts. When the weekly 10 exponential moving average is above weekly 10 exponential moving average one week ago is the new uptrends on weekly charts.
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