Terminal Shakeout A corrective rally to N recovers nearly one-half of the decline from K to M. The rally peters out on low volume before price falls back to test support at 11. Volume picks up on this test, and we conclude that buyers are again active near the lows. A quick rally is followed […]

Trading the Short Side: Shorting Stocks We are of the opinion that WMT has been accumulating since at least early 1994. A big upside move may be in the making, and we are tuned to the long side. Nevertheless, tipped off by WMT’s recent relative weakness, we liquidated our long position. But we are not […]

Sign of Strength? A one-half point chart of WMT provides two preliminary upside targets. The first count of 2 1/2 points (1/2 x 5=2 1/2) across the 11 row offers a target of 13 . This count makes sense to us since it returns WMT to the high point of the last rally. However, we […]

Reaccumulation Indifferent relative strength kept us out of WMT during 1992, even though the stock’s nominal price moved up over that period. As 1993 gets underway there is little evidence of organized distribution, apart from increased volatility. There is no good reason to make a trade in the stock, long or short, so we remain […]

The Janus Strategy The chart below shows the results of strength-following and contrarian strategies over a period of twelve years, from early 1987 to mid-1999. The target universe is composed of a diversified list of group indexes. The protocol used is simple. The relative strength of each group index is calculated using price data from […]

The Nature of Strength-Following Markets Rising strength-following markets are the best of times. If contrarian markets are a time of tilling and sowing, then strength-following markets are a time of harvest. When both prices and the Spread are rising, the most profitable strategy is to buy and hold the strongest stocks. During these periods the […]

The Nature of Contrarian Markets During contrarian markets, strong hands sell into strength and buy into weakness. To stay on the side of strong hands, adopt a contrarian strategy when the Spread is falling. Reduce or eliminate positions in stocks which have led the market in recent months, and review laggard issues for new opportunities. […]

Reading the Spread The chart below shows the Spread for three well-diversified but different stock lists over the same two-year time period. Compare the three Spreads. Each of these distinct universes of stocks produces a Spread with unique features.But their similarity, not their difference, is most telling.The fact that these three tend to rise and […]

Computing the Spread 2 In the last lesson, we learned to compute the periodic relative strength of stocks in a target universe. In this lesson, we will outline the remaining steps required to compute the Spread. A diverse universe of stocks is sorted by relative strength into two sets, a) those which are stronger than […]

Computing the Spread 1 ‘In some seasons, trend following is good; in others, reversing is good. The problem is how to differentiate the two seasons in advance.’ Victor Niederhoffer The Education of a Speculator The Spread is the difference in performance between relative-strength leaders and relative-strength laggards.As we saw in the previous lesson, this difference […]