The Cabot proprietary system screens for the strongest momentum charts out of more than 8,000.
A stock’s price at any moment reflects all the facts, rumors, earnings (real and anticipated), hopes and expectations that investors have about that particular company. As soon as a significant change in perception (for the better or worse) takes place, it is bound to be reflected in the price of the stock.
So why not just look at price charts to gauge the stock’s performance? Because a rising tide floats all boats. Because in a strong bull market even the mediocre companies will be pulled upward. Similarly, in a destructive bear market, even the best stocks can get punished by indiscriminate selling pressures as investors who fear the worst sell everything, fleeing to the safety of cash.
Relative performance, however, corrects automatically for the effect of the broad market. Relative performance (RP) is simply a measurement of how a stock is acting relative to the market as a whole. This can be measured mathematically, but we prefer a visual representation because we have found it easier to analyze. A picture really is worth a thousand words.
The relative performance (RP) line, when moving upward, shows a stock to be performing better than the general market. When it drifts downward, worse. And when the line is virtually level, it is informing you the stock is performing about the same as the averages.
As you examine the relative performance of various stocks, there are many special characteristics you can be on the lookout for. Most stocks, like most businesses, are mediocre in their performance. In general they do no better or worse than the market averages. (Cabot Top Ten Trader rates these stocks NEUTRAL.)
Then there are those stocks that are consistently performing worse than the averages. They just seem to go from bad to worse, month after month. To many investors, these stocks appear to be “great buys” as they continue down and down. But in reality these stocks are reflecting the tremendous number of problems the company has to contend with. (Cabot Top Ten Trader rates these stocks NEGATIVE)
Cabot Top Ten Trader rates those stocks whose Relative Performance Lines continually and persistently move ahead on a positive steep slope with a minimum of corrections POSITIVE.
| PERFORMANCE RATINGS: |
Positive = Congratulations From a chart standpoint, this is a good stock to buy or hold. |
Neutral = Wait a Minute The RP line is saying it’s prudent to wait for better performance before buying. If the stock is a current holding, consider setting a price stop. |
Negative = Problem The RP line is telling us that this stock does not belong in an investor’s portfolio. |