As of the close on November 20, the S&P 500 index is trading about 90 points off its high for the year - 1387.81 relative to 1474.51 seen in September. However, while the major index is in correction mode, not all stocks are responding and some are even making new highs. While fighting the overall trend of the market isn't a good habit to get into, looking for "relative strength" is a worthwhile endeavor. Stocks that don't fall too much, or rally, when the overall market is weak are likely to continue to do quite well when the overall market begins to rise again. In addition, as long as the stock stays strong it provides some shelter from the weaknesses seen in other stocks. The caveat is that strength can disappear at any time, therefore, having to watch support and resistance levels and base trading decisions on that will greatly aid in the process.

SEE: Momentum And The Relative Strength Index

AFLAC Inc. (NYSE:AFL) has been in a well-defined uptrend since June, and is currently trading near the yearly high of $52.46 made on November 6. Mid-November saw a pullback toward the trendline, but found support at $49; the trendline currently intersects at $48.50. For the uptrend to continue, the price will need to rally back above the 52-week high and remain above $49. A drop below will create a "lower low," drawing the uptrend into question and likely resulting in a further decline below the trendline. If a new high is made the upside target is hard to quantify, yet prior moves in the trend have advanced $1 to $2 before meeting some resistance and pulling back. Therefore, a conservative target is $53 to $54 on the next swing higher ... should it occur.

SEE: Interpreting Support And Resistance Zones

AFL uptrend

AmerisourceBergen Corporation (NYSE:ABC) has been moving steadily higher since mid-September, but has stalled and created a triangle price pattern through November. The converging price action - a triangle - typically is a continuation pattern indicating the next major move will be to the upside. Assuming this will be the case is a dangerous practice though. A strong resistance over the last couple weeks has been $41, therefore a break above that level signals an upside breakout and a target just below $43. On the other hand, a drop below $39.90 breaks the triangle pattern to the downside and is likely to target $38. An upside breakout shows that the stock is still strong, both on its own and relative to the broader market.

ABC uptrend



Ameriprise Financial (NYSE:AMP) is another stock in a well-defined uptrend since June. It currently trades near the 52-week high of $61.04 seen on November 6. Between September and October, support developed between $55 and $56 and on the most recent pullback in November the stock found support at $57. For the uptrend to continue and for the stock to maintain its relative strength relative to the market, it will need to hold above these support levels and also rally above the 52-week high. Based on the current trend trajectory, if the uptrend continues the target is between $63 and $65.

AMP uptrend



ARM Holdings Inc. (Nasdaq:ARMH) starting screaming higher in late October, jumping from $28.12 on October 22 to an intra-day high of 35.81 on November 19. That sort of momentum can't last indefinitely, but there are still likely opportunities in the stock over the coming weeks. After such a quick rally, a pullback is possible - $33.70 has been an area of support since early and November, and if it is broken it indicates a further slide could develop. Support is likely to enter between $32 and $31 as those that missed the initial move look to enter on a pullback. If the stock rallies above $35.81 again, it could spark another quick run up in the price, as those looking to get in scramble to get shares, and those that are still short scramble to get out.

SEE: Technical Analysis: Support And Resistance

ARMH uptrend

The Bottom Line
The S&P 500 index has been in a correction mode, but that doesn't mean there aren't strong stocks out there. Stocks showing strength in the face of a weak overall market are exhibiting "relative strength," a quality you want in your long holdings regardless of the market conditions. Relative strong stocks move up more and fall less than most other stocks reflected by an index. Of course, strength can disappear at any time. Watch support levels, as a breach may signal the stock is due for a decline. On the other hand, if the stocks continue to rally there is more upside to be had.

Charts courtesy of stockcharts.com

At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.

Related Articles
  1. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  2. Investing Basics

    5 Things to "Deliberately" Do to Improve Your Trading

    Most traders are putting in trading hours, but not improving. Here are deliberate steps that can take your trading to the next level.
  3. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  4. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
  5. Stock Analysis

    Benefits of Regional Bank ETFs over Commercial Banks

    The SPDR S&P Regional Banking ETF offers a stable local alternative to broad-based multinational commercial banking sector funds.
  6. Chart Advisor

    Strategizing for a Market Fall...or Rally

    The downtrend isn't confirmed yet, so be prepared with trades for whether the stock market rallies or continues to fall. Here's how to do it.
  7. Trading Strategies

    Are You a Trend Trader or a Swing Trader?

    Swing traders and trend traders execute market timing strategies that require different skill sets.
  8. Technical Indicators

    Detrended Price Oscillator Trading Strategies

    The detrended price oscillator (DPO) offers a simple approach to cycle analysis, removing momentum and long-term trends from the equation.
  9. Investing

    Using Fibonacci to Analyze Gold

    Use Fibonacci studies to analyze gold by picking out hidden harmonic levels that can provide major support or resistance.
  10. Investing

    Predictions For The Stock Market

    Learn different choices and strategies that can be used to create a profit regardless of what direction the market is going.
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  3. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>
  4. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>
  5. How was the Fibonacci retracement developed for use in finance?

    The use of Fibonacci retracements in stock trading was popularized by noted technical analysts W.D. Gann and R.N. Elliott. ... Read Full Answer >>
  6. How reliable is the Fibonacci retracement in predicting stock behavior?

    The use of the Fibonacci retracement is subjective. There is no objective method to verify one application of the Fibonacci ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!