Saudi Stocks: Relative Strength — Relative Strength , Saudi Analysis — GCC Market Analytics
Saudi Stocks: Relative Strength | GCC Market Analytics

Thursday, 9 September 2010

Saudi Stocks: Relative Strength

Most of the analysis I've posted so far has concentrated on the market or index level.  Knowing what the broad market is doing is important but I also want to provide sector and stock level analysis as well.  Now that I have my historical share price database in working order I can start doing this. 

In this post I'm going look at Saudi stocks and introduce a simple relative strength study that can be used to quickly evaluate the how strong or weak recent price action has been for a particular stock.  It can also be used to compare the relative strength/weakness between stocks.

The study compares the current price of a stock to the  previous 20, 50 and 100 days price action.  Specifically, the current price is ranked between 0 and 100 according to the 20, 50 and 100 day price ranges.  For example, if the current price of a stock was $47 and this was the highest price for that stock over the last 20 trading days the resulting ranking value would be 100.  However, if $47 represented the lowest price over the last 20 trading days the ranking would be 0.  A ranking value of 50 would signify that the current stock price was in the middle of the price range over the last 20 trading days.

The chart below shows the last 100 trading days for Saudi Hollandi Bank.  The three yellow triangles mark the stock price 20, 50 and 100 trading days ago.  The red circle highlights the current price of the stock.  The 50 day price range is also show on the chart.

As can be seen, the current price is the highest price during the last 50 trading days.  The same goes for the current price versus the 100 and 20 day price ranges.  Is this example the ranking of the current versus all three historical price ranges would be 100.

And below is how the same information is presented in the relative strength study:

The three red-to-green spectrum bars correspond to the three time periods; 20, 50  and 100 days.  The dark blue diamonds mark the ranking of the current price versus the historical ranges. For Saudi Hollandi Bank all three diamonds are positioned to the far right indicating that the current price is in the highest portion of the historical ranges.

This is a stock that has clearly demonstrated significant price strength over the past 20, 50 and 100 trading days. This strength is captured in the "Rank" column above.  The highest ranked stocks are those that have achieved the highest combined relative strength across the three trading ranges compared to other Saudi stocks.  That Saudi Hollandi Bank has a ranking of 1 tells us it is currently the strongest performing Saudi stock.

Here's another example for The National Shipping Company:

In this case the diamond is in the middle of the bar for the 20 day price range indicating that the current price is in the middle of that range.  For the 50 and 100 day ranges the diamonds are positioned towards the left end of the bar indicating that the current price is in the lower portions of those ranges. 

The National Shipping Company has a ranking of 98.  Given that there are about 150 Saudi stocks (in my database, that is) this ranking suggests that The National Shipping Company is one of the weaker performing stocks.

So, this study shows the relative strength of a stock (how the current price of a stock compares to its historical price action) and how that relative strength compares to other stocks. At the end of this post is a complete list of relative strength data for all Saudi stocks. Below, however, are the ten current highest and lowest ranked relative strength Saudi stocks:

Of course, knowing the stocks with the highest and lowest relative strength is one thing but how do we use this information? Do the highest ranked stocks continue to perform strongly? Or is it best to buy the weakest stocks in anticipation of a rebound?  In future posts I'm going to cover stock rotation strategies which will be aimed at answering these types of questions.

That's all for now though.


[ Click to enlarge ]