RELATIVE STRENGTH

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    Our goal is to outperform the averages so we therefore want to buy those stocks 
which have the highest probability of outperforming the market.


    Positive relative strength does not mean the stock has to go up.  If the market
falls but XYZ remains the same, it has outperformed.


    Calculation of relative strength is fairly simple. Divide the price of the stock
by the Dow and then then multiply this by 1000.  The reason we multiply by 1000 to just
to get a number which is easy to work with. This product is then plotted on a point and
figure chart.


    A RS buy signal is given when a column of X's exceeds a previous column of X's and
a RS sell signal is given when a column of O's exceeds a previous column of O's.


    Once a buy or sell signal is given, it usually lasts about two years.


    We also look for reversals from one column to another in RS charts as this tells 
us the current relative performance of the stock compared to the market.


    Try and focus your buying on those stocks which have given relative strength buy
signals in the past six months or so as this will get you in on the beginning
of a trend.


    Another way of looking at relative strength is to compare the percent of stocks
in an industry group which have positive relative strength today versus six months ago.
If the percent of stocks in the group which have positive relative strength is higher
than six months ago, it is a sign that the group should be a good performer for some
time.  Mike Burke of Chart-craft developed this way of looking at industry groups 
and relative strength.




Below is a sample Relative Strength Chart



       Relative Strength (Buy)        



10.0  --+---------+----------------
9.5     |         |                
9.0   --+---------+----------------
8.5     |   B   C | 2              
8.0   --+---A-O-X-O-X--------------
7.5     |   X O X O X              
7.0   --+---X-O---1----------------
6.5     |   X     |                
6.0   --+---8-----+----------------
5.5     |   X     |                
5.0   --3---X-----+----------------
4.75    X O 7     |                
4.50  --X-O-X-----+----------------
4.25    X 5 X     |                
4.00  --2-O-------+----------------
3.75    X         |                
3.50  --X---------+----------------
3.25    X         |                
3.00  --C---------+----------------
2.75    X         |                
2.50  --X---------+----------------
2.25    |         |                
2.00  --+---------+----------------
      -9+9-------9+9---------------
       4|5       5|6               

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