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MTA Webcast: Relative Strength Strategies

MTA Webcast: Relative Strength Strategies. David Keller, CMT July 2009. Relative Strength Strategies. Technical Research at Fidelity Introduction: Why relative strength? Calculations: How should I think about relative strength? Application: How do I implement relative strength?

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MTA Webcast: Relative Strength Strategies

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  1. MTA Webcast:Relative Strength Strategies David Keller, CMT July 2009

  2. Relative Strength Strategies • Technical Research at Fidelity • Introduction: Why relative strength? • Calculations: How should I think about relative strength? • Application: How do I implement relative strength? • Advanced: Combining with other indicators • Lessons from the recent bottom • Conclusions David Keller, CMT

  3. Technical Research at Fidelity FMR Technical Research Department Research Visualization Diversified Technical Analysts Sector Analysts Chart Room David Keller, CMT

  4. Technical Analysis vs. Fundamental Analysis Fundamental Technical • Identifying the best time to execute a fundamental strategy • “There are plenty of bad times to buy good stocks.” • “What” and “Why” • Analyze the company • Cause • “When” and “How” • Analyze the stock • Effect David Keller, CMT

  5. The Fidelity Chart Room David Keller, CMT

  6. Introduction: Why relative strength? • “The general idea, applied to stocks, is to buy the stocks that are going up- relative to similar stocks- and sell them when they start going down.” -Michael Carr, Smarter Investing in Any Economy • Relative strength as a scorecard • Relative strength as an investment tool • Relative strength as a market indicator David Keller, CMT

  7. Introduction: Why relative strength? Source: Alan Shaw, Louise Yamada David Keller, CMT

  8. Introduction: Why relative strength? David Keller, CMT

  9. Introduction: Why relative strength? David Keller, CMT

  10. Calculations: How should I think about relative strength? • The most common version: • RS = Stock Price / Benchmark Value David Keller, CMT

  11. Calculations: How should I think about relative strength? Other calculation methods: • Rate of change RS = 13-week ROC / 52-week ROC • Relative to moving average RS = Price / 5-day MA • Indicator-based RS = RSI Michael Carr, Smarter Investing in Any Economy: The Definitive Guide to Relative Strength Investing, 2008. David Keller, CMT

  12. Calculations: Relative Strength vs. Relative Strength Index (RSI) David Keller, CMT

  13. Calculations: How should I think about relative strength? Other considerations: • Weightings • Front-weighted, Back-weighted, etc… • Ranking System • Percentile ranking- select stocks by quintile, decile, etc. • Value Line, IBD • Point & Figure Charting David Keller, CMT

  14. Application: XOM Case Study David Keller, CMT

  15. Application: XOM Case Study David Keller, CMT

  16. Application: XOM Case Study David Keller, CMT

  17. Application: XOM Case Study David Keller, CMT

  18. Application: XOM Case Study David Keller, CMT

  19. Advanced: Combining With Other Indicators David Keller, CMT

  20. Advanced: Combining With Other Indicators David Keller, CMT

  21. Lessons from the recent bottom What’s supposed to happen: David Keller, CMT

  22. Lessons from the recent bottom What also happened: David Keller, CMT

  23. Lessons from the recent bottom What I learned: • This is not easy. • No matter how much a chart looks like other charts you’ve seen, go through the motions. • Force yourself to review mistakes. David Keller, CMT

  24. Conclusions: Recommended Readings Also: • Charlie Kirkpatrick’s 2001 Charles Dow Award paper • Robert A. Levy, “Relative Strength as a Criterion for Investment Selection,” Journal of Finance David Keller, CMT

  25. MTA Webcast:Relative Strength Strategies David Keller, CMT Managing Director of Research Fidelity Investments david.keller@fmr.com

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