Relative Strength - two types

There are two types of relative strength I want to discuss here which could be classified objective and subjective. The first type goes along with our Performance Charts below and is a relative strength based on a comparison so it is sometimes called relative strength comparative. This would be a comparison to a market or index. It could also be called an objective relative strength because the strength is measured against some other indicator. For example, a sector can be compared with the broader market of which it is a part, or two sectors can be compared to each other. We have compared the market of 7 different countries by their index below and found the Hang Seng to be doing the best. Likewise with the sectors Energy is doing the best if we look back over the past year.

The other type of relative strength is a subjective type, if I may use that term to distinguish it from the type above. It is know as the Relative Strength Index (RSI) and is a financial technical analysis oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation, which is commonly set to 14. The RSI can be calculated on any stock or index using its recent history alone. No other stock or index is needed for comparison. I will be posting the weekly RSI of the Select SPDR here as well as the broader market.

Another type of Relative Strength is the ranking system used by Investor’s Business Daily. I will discuss that at another time.