What’s the usual advice given to would-be, long-term, buy-and-hold, stock investors? “Buy the best companies in the strongest sectors”. But how can you tell which are the strongest companies and which are the strongest sectors? Two ways, of course. Do comparative analysis based on fundamentals. Or do comparative analysis based on technicals. (Or, do both.) Since this forum focuses on investing (or trading) based on 'technicals", let’s see what we can come up.
We’ve already established that using what Quill has named the ‘HA Smoothie’ is a good way to know when to get in or out of any given stock. (Yeah, yeah. I did a tweak. But the “engine” of the decision process is his, and always has been his going back a couple of years now. I’m just a kibitzer, just someone whose ideas he’s occasionally adopted. Now we need to find a way to tell whether the stock we’re charting is our best choice compared to others we might choose. Fortunately, BarChart provides at least three indicators for doing comparatives. (Comparatives can also be done with chart overlays. But doing that makes for messy, ugly charts unless it’s done at Yahoo.)
The three comparative indicators BC provides are ‘Comparative Relative Strength’, ‘Dorsey Relative Strength’, and ‘Mansfield Relative Strength’. I’d urge you to explore them all, as well as try out BC’s "Compare’ feature. (To use it, click on its header.) But my bet is that you’ll like the Mansfield version the best.
Now, here’s where things can get tricky. Do you compare a stock against other stocks in the same industry/sector? Do you compare it against an index that tracks the industry/sector? Do you compare it against a broad market index, the default for which is the SP500 (for reasons that don’t make a lick of investing or trading sense, given the cap-weighted construction of the index and its resulting bias toward tech stocks and financials).
Aside: If you want a broad market stock index that’s also a good proxy for the economy generally, pick an equal-weight index. Thus, use RSP rather than SPY for your comparison symbol or an “all-stocks” equal-weight index. They are out there. I just don’t remember their tickers.)
I hate tech stocks and don’t buy 'em or trade 'em. But I do buy country funds, and the comparative process is the same. So let me illustrate the concept using them.
Not withstanding the fact that many US companies really are global in the cope of their operations and revenues, I think there is still a strong case to be made for what’s often called ‘international investing’ in which groups of stocks are aggregated into indexes that serve as proxies for the economies of single countries or coherent regions. Thus, there are ETFs tha track Greece [GREK] or Turkey [TUR] or all of Latin America [ILF]. At any given time, most of them do nothing but track the US market, which is the “elephant in the room” of the global economy. But sometimes, some of those economies --hence, their stock markets-- offer better returns than the US. Here’s an example (where the baseline, comparative symbol is RSP).
Swapping in symbols for charts can be tedious, But BC provides a workaround. Watchlists can be constructed. (Five watchlists per free account, with no limit that I’ve discovered on how many symbols can be in each watchlist.) Once a watchlist is selected, the ‘FlipCharts’ feature can be used. Now it becomes possible to see quickly how dozens of stocks are currently doing compared to whatever base symbol you’ve chosen. The only thing you need to remember is that, if the stock you’re looking is showing a lot of red bars --aka is in a decline-- but it is clearly doing better than your base symbol, that doesn’t mean it’s a ‘buy’ . It just means it isn’t losing as much money.