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Industry Group Relative Strength
The Importance of Industry Group Relative Strength
Knowing which Industry Groups the Institutional Money is flowing into and out of is very important to recognize. If your invested in Stocks that reside in low Relative Strength Industry Groups then they may remain poor performers until that Industry Group shows signs of increasing Relative Strength. Sometimes it can take many months or even a few years before an Industry Group will finally begin to show signs of life.
Lets look at a couple of Industry Groups over the past few years and see how they compare based on Relative Strength and Price Performance. The Gold and Silver Sector has been very strong since the first of the year which has been reflected in its Industry Group Relative Strength and Year to Date price Performance.
Notice how this Industry Group was strong in the Fall of 2001 but gradually became out of favor in November and December of 2001 as the Groups Relative Strength dropped to 8 (highlighted in blue). However things began to change by January as the Group’s Relative Strength began to increase and has been very strong since February with values consistently in the 90’s (highlighted in red).
If we look at the individual stocks in the Mining-Gold/Silver/Gems Industry Group all of them have performed well except for one. The Average Year to Date Return for the Group since January 1st is over 130% as of May 24, 2002. This is why it’s important to notice which Industry Groups are starting to show signs of increasing Relative Strength.
Now lets look at a Industry Group (Medical-Generic Drugs) which has been exhibiting low Relative Strength values over the past several weeks. Notice in the table below how this Industry Group was strong in the Fall of 2001 but quickly fell out of favor as the Relative Strength values dropped from 96 in October to as low as 1 by January of 2002 (highlighted in blue). During the past several weeks the Relative Strength values have continued very low (highlighted in red) as this Industry Group has remained out of favor with the Institutional Money.
If we look at the individual stocks that make up this Industry Group several of them have been performing very poorly since Jaunary 1st with an Average Year to Date Return of -16% through May 24, 2002..
We track over 180 different Industry Groups each week as this allows me to notice which Groups are showing signs of decreasing or increasing Relative Strength and where the Institutional Money is flowing into or out of. Recognizing these trends can be very beneficial to investors as typically the best performing Stocks will reside in high Relative Strength Industry Groups as shown by the above examples.