The chart below measures the percentage of high relative strength stocks that are trading above their 50-day moving average (universe of mid and large cap stocks.) As of 1/19/10.
(Click to Enlarge)
The 10-day moving average of this indicator is 89% and the one-day reading is 85%. This oscillator has shown the tendency to remain overbought for extended periods of time, while oversold measures tend to be much more abrupt.
Looks near identical to just the regular % of stocks above a given moving average, and seems to have the same issue with regard to calling tops - that is it is much better at the bottoms than the tops. How are you defining high RS stocks?
All diffusion indicators that I know of have the same issue of being more useful at pointing out oversold areas than overbought. Oversold measures tend to spike off the bottom, while overbought often stays that way for extended periods of time. The investment universe is a universe of appx 900 mid and large cap US stocks. We rank them based on a proprietary relative strength rank. We define the high rs universe as the top quartile of stocks in the universe, ranked by relative strength.
So what’s the value of the RS rank? Just curious why you’re ranking using RS if it provides no new info.
At times, the high rs universe of stocks behaves quite differently than the broader universe. It is a way of seeing when the high rs universe is oversold.
Makes sense - be useful to see this index vs. the broader market to see the differences.
Thanks for the posts on this - very interesting insights.