If a stock is so strong that it trends higher, even while the main stock market indexes are range-bound, the stock is said to have high Relative Strength.
Accordingly, what happens to the price of a stock with high relative strength when the broad market eventually rallies higher as well?
Those stocks typically zoom higher, outperforming the broad market gains on the upside, while also losing less than the major indices in periods of weakness.
This means that relative strength trading maximizes our upside profit potential and minimizes our downside risk (and that’s key in weak markets).
In this video blog post, we walk you through the monthly, weekly, and daily charts of six of the strongest stocks in the market right now.
Grab a pen and paper to take notes, then watch the valuable video below to know the best stocks to buy if the bulls retain control in the coming days/weeks (view in full-screen mode):
To recap, the six stocks in this video with high relative strength are:
- Hooker Furniture Corporation (O:HOFT)
- ORBCOMM Inc (O:ORBC)
- MaxLinear Inc (N:MXL)
- LSI Industries Inc (O:LYTS)
- Mitek Systems Inc (O:MITK)
- Facebook Inc (O:FB)
Timing Is Indeed Everything
With a selloff in January that was followed by sideways, range-bound trading action in February, the stock market has provided minimal opportunities for swing and trend traders on the long side so far this year (with the exception of the stealth Gold ETF (N:GLD) trade that we’re still long).
However, IF the S&P 500 follows on Wednesday's bullish hammer candlestick pattern, stocks could see a bit of bullish price momentum through at least early March.
If that happens, you now have a clean list of high relative strength stocks with the potential to show leadership, but the more challenging part is knowing precisely when to buy and sell.