The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks). When the chart is rising, relative strength leaders are performing better than relative strength laggards. As of 7/16/2015:
What a decade… Some observations:
- RS leaders performed much better than RS laggards leading up to and through much of the financial crisis
- As the market bottomed in March 2009 we experienced one of the biggest laggard rallies in history
- The RS Spread was flat for years after 2009. I am not exactly sure why this is, but one guess is the higher correlations between all stocks as the market seemed to respond in unison to macro events (often Fed-driven events)
- The RS Spread is above 3.5 on this chart for the first time in years and RS leaders have been more stable that we have seen in a long time
This example is presented for illustrative purposes only and does not represent a past recommendation. The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.
