What does Jon mean when he states that Relative Strength has broken out ahead of price, which is a bullish sign? (March 6, 2001)
Relative strength is a measure of that particular stock versus some standard. Usually that standard is the S&P 500 as it is rather a broad measure of the overall market. On most charting programs you can put relative strength versus the S&P 500 as an indicator on the chart. When we see stocks in strong patterns, we like to see the relative strength strong as well. That means they are on top of the market. We like to see relative strength breakout of its range when a stock breaks out. That is an indication that the move is strong. When relative strength breaks out ahead of the price, that indicates the stock is holding up very well compared to the broader market. If the S&P 500 tanks and a stock you are watching holds steady, its strength relative to the S&P 500 will rise. Some would say it is doing nothing, but to the contrary, holding steady when the rest of the market tanks is very positive. As soon as the broader market stabilizes and makes a move up, that will usually trigger the breakout in the price that we are looking for.
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