Relative strength vs. the SPX

Question: I wonder about your indicator about Relative performance SP500 index. Could you explain for me???

Great question. We will briefly address the relative price ratio versus the S&P 500 in this post and will plan on putting together a Tech Speak 101 on this topic in December.

How to read a relative price chart

A relative (or ratio) chart compares the price of a security relative to another. It is often used to identify a stock's relative strength or weakness versus a benchmark, such as the S&P 500. This is also known as comparative relative strength and is not to be confused with the Relative Strength Index (RSI), which is a price momentum gauge.

• When the relative price chart versus the S&P 500 is rising, the stock is outperforming and shows relative strength. This stock is leadership.

• When the relative price chart versus the S&P 500 is falling, the stock is underperforming and shows relative weakness. This stock is a laggard.

• A sideways relative trend means that the stock is performing in line with the market benchmark.

If your goal is to beat the benchmark index, such as the S&P 500, using comparative relative price strength can help achieve that goal through buying and/or holding leadership stocks and selling/avoiding the laggards.

Chart 1: Lam Research (LRCX) relative to the S&P 500