What Is the StockCharts Technical Rank (SCTR)?
The StockCharts Technical Rank is a numerical ranking for individual stocks in different groups— large-capitalization (cap), mid-cap, small-cap, U.S. non-leveraged, and non-inverse exchange-traded funds (ETFs), and Canadian stocks—showing the stock's overall strength based on six technical indicators covering various time frames. The ranking method is called SCTR (pronounced "scooter") for short.
The SCTR was created by John Murphy, a technical analyst, and author, and is available on Stockcharts.com.
- The Stockscharts Technical Rank (SCTR) assigns a value of zero to 99.99, which shows how a stock ranks in terms of technical strength.
- The ranking utilizes past price performance, based on six technical criteria.
- A ranking of zero indicates the stock is the weakest in the group, technically speaking. A rank of 99.99 indicates the stock ranks highest in terms of technical performance.
- An increasing SCTR means the stock's price performance is showing strength relative to the group of stock being analyzed. A decreasing SCTR shows deteriorating relative price performance.
Understanding the StockCharts Technical Rank (SCTR)
Investors choose the group they wish to analyze, which provides a list of stocks within that group ranked from zero to 99.99. A score of 99.99 means the stock is performing extremely well compared to its peers based on the six technical criteria.
Zero is the weakest score, indicating the stock is severely underperforming its peers in the group, from a technical perspective.
Some traders may wish to buy strong stocks, or stocks with an increasing SCTR ranking, while selling or shorting stocks that have a weak or deteriorating SCTR ranking. This is based on buying or selling relative strength or weakness.
A rising SCTR shows the stock is gaining momentum against its peers. This means it could be increasing in value currently, or that it is holding up better or not falling as much as its peers. A falling SCTR shows the stock is losing momentum against its peers. The price may be dropping, or the price may simply be lagging the price performance of its peers.
All the indicators in the ranking system are based on price. In this way, the SCTR reveals how the price performance of any given stock compares to others.
The SCTR formula covers different time frames, and a stock must score well on all of them to receive a high score. The most weight is given to the longer-term indicators, since the long-term trend is a more dominant force than short-term fluctuations.
It is created using the following formula and weightings:
- Long-Term Indicators (weighting): Percent above/below the 200-day exponential moving average (EMA) (30% weight) and the 125-day rate-of-change (ROC) (30% weight).
- Medium-Term Indicators (weighting): Percent above/below 50-day EMA (15%) and the 20-day rate-of-change (15%).
- Short-Term Indicators (weighting): Three-day slope of percentage price oscillator histogram divided by three (5%) and the relative strength index (5%).
The SCTR compares a stock to its peers, not to a specific benchmark such as the S&P 500 index.
Example of How to Use the StockCharts Technical Rank
The SCTR is a highly versatile tool. It can be used to filter stocks in order to find those that are very strong. This would aid a trader who is looking for stocks with lots of current upside momentum.
Alternatively, the SCTR could be used to find stocks that are very weak, potentially poised for a turnaround, or that may present a good value investing opportunity. Just because a stock has dropped in value, however, doesn't necessarily mean it is worth buying.
A blending of both these concepts is to look for stocks that have had low SCTR rankings but that are improving. This shows the stock is recently outpacing its peers. Similar to trading chart patterns, traders can watch for breakouts in the SCTR, such as a move above a prior swing high or a move from below 30 to above 30 or 50 (or any desired level).
The following daily chart of Leggett & Platt (LEG) shows a number of trades based on various types of breakouts in the SCTR. Some produced good entry signals, while others produced poor entry signals. Green arrows represent buy entries, and red arrows represent short entries.
Notice that a rising SCTR doesn't always indicate a rising share price. This is because a stock's price can actually drop, but if the stock drops less than its peers, its SCTR will increase.
There are multiple ways to use the SCTR, and many simply opt to use it as a confirmation tool. For example, if they find a stock they want to buy, they will look to see if the SCTR is increasing. If it isn't, that means the stock isn't yet performing as well as its peers, and possibly another stock in the group is stronger and therefore a better purchase. Buying before the SCTR starts increasing means the trader is expecting the stock to start performing better, which it may or may not do.
The Difference Between the StockCharts Technical Rank and Relative Strength
The SCTR goes beyond comparing one stock to another or comparing a stock to index, which relative strength does. The SCTR rank shows how strong a stock is, based on the technical criteria, versus a group of other stocks. Relative strength may show you that one stock is outperforming the S&P 500 index, but the SCTR shows how that outperformance compares to other stocks. It is the ranking feature that makes the SCTR unique.
Limitations of the StockCharts Technical Rank (SCTR)
The SCTR value can change rapidly. A stock that looks strong, say with a 99 SCTR, can have its rank slashed in a day to near zero on a big sell-off. Therefore, the SCTR is a lagging ranking method. It shows past performance but doesn't indicate future performance.
As mentioned, the SCTR can sometimes be deceiving. It is a ranking system, so a stock may actually be dropping in price but still have a rising SCTR. This doesn't necessarily mean it is a good purchase. The SCTR is best utilized in conjunction with other forms of analysis, such as price action, technical indicators, or chart patterns.