The relative strength (RS) line: how to read it
The RS line is the stock price divided by the S&P 500. If the line rises, the stock beats the market. A new high in the line before the price itself is one of the strongest signs of a future leader.
Each day the closing price is divided by the S&P 500. The absolute level is irrelevant; the slope matters.
The stock falls less than the market or rises against it. Such stocks are often first to new highs after a correction.
The price is still in a base while the RS line is already at a new peak. Traders look for this before a breakout.
The RS line is often confused with the RSI indicator. RSI compares a stock with its own past; the RS line compares it with the market.
- Today 128 stocks have their RS line at a new 52-week high
FAQ
Which index to compare with?
Usually the S&P 500. For small caps the Russell 2000 is sometimes used.
Which timeframe?
Mostly daily and weekly. Weekly removes the noise.
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