|
|
|
|
 |
Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter; a forum for us to use our meager abilities to make the world of specinvestments a better place. |
Write to us at:
(address is not clickable)
1/25/2005
Spec Lab: Relative Strength, by
Philip J. McDonnell
The lore of the market is filled with advice to stay with relative strength. Buy strong stocks in anticipation that they will get stronger. There is something satisfyingly Newtonian about this idea - a body in motion will continue in motion unless an outside force acts upon it.
On Nov. 11, 2004, I recorded a list of the strongest 10 stocks on the NYSE and OTC.
Returns for this basket of stocks to date were:
Strongest stocks: -1.73% S&P 500: -0.01%
Although it's a small sample, it seems there is no compelling reason to believe that relative strength is outperforming the market at this time.
Prof. Charles Pennington comments:
Very good, but don't expect to find comfort on the losers' end of the spectrum either. Shown below are the five worst-performing stocks in the S&P over the 250 trading days prior to Nov. 11, 2004, and their returns from Nov. 11 to now.
| Stock | % Return (Yr Ended 11/11/04) | % Return (11/11/04 to present) |
|---|---|---|
| CIEN | -63M | -9 |
| LSI | -25M | 8 |
| PMCS | -51 | -18 |
| WIN | -51 | -5 |
| DAL | -49 | -30 |
Average return from 11/11 to now is -7%.
(Please don't ask why I'm such an expert on this topic.)