Scanning Technically

Scanning for relative strength

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Users can scan for stocks showing relative strength by comparing the Rate-of-Change for a given timeframe. The first step is to pick an index for the benchmark, such as the S&P 500. The Nasdaq 100 ETF (QQQQ) would be better suited for a performance comparison against large-cap technology stocks, while the Russell 2000 ETF (IWM) would be good to compare performance against small-cap stocks.
The second step is to pick an indicator. This example uses the Rate-of-Change, but other momentum oscillators can be used for the comparison. A negative Rate-of-Change cannot be used. When the Rate-of-Change for the S&P 500 is negative, a simple scan for a positive Rate-of-Change (>0) will return stocks showing relative strength. Alternative, one can compare the levels of other indicators. If 14-day RSI for the S&P 500 is at 40, then stocks with 14-day RSI above 50 show more relative strength in momentum.

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The chart above shows the S&P 500 with three different rates of change: 5-day, 10-day and 20-day. $SPX is up .13% of the last 5 days, up 1.93% over the last 10 days and up 5.65% over the last 20 days. Stocks with a higher Rate-of-Change over the corresponding periods show relative strength. Those with a lower Rate-of-Change show relative weakness.

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The image above shows a scan looking for S&P 500 stocks that are outperforming over the last 5, 10 and 20 days. Stocks must be outperforming for all three periods to make the cut. Keep in mind that this is just the first cut and the results will be rather large. For the S&P 500, over 200 stocks are outperforming over the last 5, 10 and 20 days. Other criteria can be added to further narrow results. Users could look for stocks with oversold conditions, an upturn in MACD or a CCI buy signal. Only 11 stocks were left standing after adding a CCI buy signal to the scan criteria.

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Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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I tested this when the SPX ROCs were negative (8 Feb 2010) and believe it fails a syntax test. G Art's Answer: You are correct. Thanks for the feedback. I have adjusted the article to take this into account.
I tried several times to put a maximum price for the scanning, but could not do it. Would you please show a picture of how it is done. Thank you.
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