5 Relative Strength Trades Flashing Buy
But just to be clear, the S&P 500 could be looking a lot worse right now. As it stands, the big index is just a few points shy of the 1430 level, a resistance level that acted as a sort of "ceiling" for stock prices back in November -- if the S&P can crack through 1430, I think we'll probably see a test of highs. And yes, that could very well happen before the calendar flips to 2013.
As strong as the S&P may be, a select group of stocks is doing one better. They're the names that are showing outsized relative strength right now -- and more than a few are flashing the buy signal this week.
So, how does relative strength work?
Put simply, relative strength is a ratio of a stock's price to a broad market index. The ratio itself isn't important -- instead, it's the trend of the ratio over time that's investible. According to academic research, relative strength is a powerful strategy over a one-to-ten month time horizon; that's the timeframe we're focusing on today.
We're taking a technical look at the five setups that have the strongest price setups right now.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
So, without further ado, let's take a look at five technical setups worth trading now.
HSBC Holdings Plc
It's been a stellar year for HSBC Holdings (HBC) -- shares of the London-based bank have rallied close to 34% since the first trading day of 2012. But with HSBC hitting new 52-week highs, it doesn't look like the upside is going to slow down from here. Instead, there's a buying opportunity in this stock.
That's because HSBC is currently bouncing higher within an uptrending channel, a price range that's bounded by trendline resistance overhead and trendline support below. This channel has been in force since late July, and over that time it's done a good job of identifying the likely extent of this stock's moves. Any stock in an uptrending channel presents a buying opportunity, but for risk-averse investors, the best time to buy comes after a bounce off of support.