2:03 – What exactly are your indicators?
Technical analysis is a skill that we use everyday at Mullooly Asset Management. This category page is designed to educate individuals on some of the basics of technical analysis, specifically point and figure charting.
1:20 – What percentage box size should be used when viewing a relative strength chart?
1:48 – “The Big Short” and FASB (Financial Accounting Standards Board)
7:34 – Technical and fundamental analysis
1:29 – When to use a rollover IRA
5:42 – Leveraged funds
9:21 – Why we use technical analysis
At Mullooly Asset Management, we have two main ways that we measure relative strength. As our friends at Dorsey Wright and Associates have shown us, it’s integral to consider a security’s peer and market relative strength when determining its place in a momentum driven portfolio management strategy.
Peer relative strength measures a security against similar investments. This could mean comparing a stock against other stocks in its sector, or comparing a fund against a fund from the same size/style box. To explain peer relative strength with a sports analogy, we can look to the divisions of Major League Baseball. You can determine a team’s peer relative strength by considering how it has performed in comparison to other teams in its division.
Market relative strength measures a security on a more wholesale, broad basis. This could mean comparing a stock against the equal weighted S&P 500, or comparing a fund to a total market index like IYY (iShares Dow Jones U.S. Index Fund) or VTI (Vanguard Total Stock Market Index Fund). To explain market relative strength with the same sports analogy, this would be like determining a team’s relative strength by considering how it has performed in comparison to all of baseball, instead of just its own division.
Securities with strong peer and market relative strength are the focal point of a momentum driven investment strategy.
We’ve previously discussed the following configurations for point and figure relative strength charts:
Today we conclude our discussion on the four types of point and figure relative strength chart configurations by discussing what it means when we see a chart on a sell signal and in a column of O’s.
To put it plainly, this security is likely to be a laggard. When a relative strength chart is on a sell signal that identifies its longer term underperformance versus the specified benchmark. Near term underperformance is characterized by the chart being in a column of O’s.
Longer term underperformance, without any signs of near term improvement, makes this the weakest point and figure relative strength chart configuration. This is one to be avoided if your investment strategy focuses on high relative strength securities.