In early January 2012, the relative performance moved back above its WMA . By the end of the month, the RS line was in a new uptrend (line 2), as AAPL closed well above the October high of $426.70.
Over the next 11 weeks, the stock gained another 44%, with the RS line confirming the high in early April. Even though it dropped almost 19% from its highs, the action of the relative performance was characteristic of a correction, not a top.
The RS line tested its WMA in May before again turning higher, as the WMA was clearly still rising. The recent trading range in the relative performance (lines f and g) looks like a continuation pattern that should be resolved by a further rally. It is a positive sign that the RS line has been forming higher highs.
The daily relative performance analysis of Apple (AAPL) provide several examples of how the RS line often forms continuation patterns that can help one identify the beginning of a new uptrend.
During the last quarter of 2011, AAPL was in a broad trading range that did not take the normal shape of a continuation pattern. The RS analysis shows a clear triangle pattern (lines a and b) that was completed in the latter part of January 2012 (line 1), when AAPL gapped to the upside. It traded in a narrow range in the $444 area for two days, before it again began to move higher.
The RS line stayed above its WMA until April 13, when AAPL closed at $605.23. For the next six weeks, the RS line stayed below its WMA, but did not make lower lows (line f). This formed the lower boundary of the recent trading range (lines e and f).
The price chart shows broad flag formations, which like the formation in the RS analysis, does favor an upward resolution. The 127.2% upside projection from the flag formation is $679.
The hourly RS analysis first broke out of its trading range (lines g and h) on January 6, when AAPL was trading in the $422 to $418 area. The support (line h) was tested a few days before prices exploded to the upside.
The 21-period WMA and 54-period SMA of the RS line continued to rise until April, as pullbacks in price were accompanied by the 21 WMA testing the 54 SMA. The uptrend (line i) was broken soon after the MAs turned negative. By April 17, when AAPL was rebounding back to the $620 area, the hourly RS line was already in a clear downtrend.
The current RS analysis (through August 7) shows that both the daily and hourly remain in their trading ranges, and are not yet signaling an imminent upside breakout.
These examples of the weekly, daily, and hourly RS analysis show that it can be quite useful whether you are an investor or trader. In my regular daily column, you can find many examples of my interpretation of the RS analysis, and this allows you to look back and see how well it has worked.
If you are going to use it in your investing or trading, it is important for you to convince yourself of its merits, as that is the only way you will have the necessary confidence to use it when it counts. Also, don’t forget the monthly RS analysis, as in this monthly Dow analysis, where it helped identify some winners.
I have found it to be a very valuable tool in my stock selection process. When I find a sector that is outperforming the overall market, the RS analysis will often help me choose between different stocks in that sector to find the one with the best performance.Of course, chart pattern analysis and OBV analysis also play a key role. When all are in agreement, the odds of success are the best.