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Relative Price Performance
I want to use a so-called “relative strength indicator” (I’m, not talking about Wilder’s RSI indicator) to measure the price performance of a stock vs. the price performance of an index or a sector. As I understand it, in StockCharts, there are three ways of doing it. This query is about the first method. I need to better understand the other two methods before using them.
One can create a chart using a “ratio ticker symbol” such as IBM:$SPX. In the chart, this would show the price of IBM divided by the price of the $SPX. Adding an MA(50) would show the trend. Uptrends mean that, price-wise, IBM’s is doing better than the $SPX (either rising faster or falling slower) and downtrends mean that IBM’s is doing worse than the $SPX (either rising slower or falling faster).
More importantly, to compare two stocks within the same sector, the last value of MA (50) tells the story of, more or less, the last three months. Am I right?