Relative Strength, Elliott Wave, and Fibonacci Levels, with Priceline Exhibits


The most valuable tool for the investor and portfolio manager is relative strength, that is, the price of the stock you are looking at versus the price of the market index (or the price of another stock in the industry or the price of the industry index). Investors are always looking for the proverbial “best of breed,” and relative strength identifies best of breed in technical analysis. Portfolio managers using a sector rotation style of money management need to use this tool. Yet another way to evaluate both the long-term and short-term cycles and price levels is to use Elliott wave and Fibonacci levels. You will use all of these tools as you analyze charts in this chapter.

There is no way to predict the future whether you use fundamental analysis, technical analysis, or both. No matter what you use, whether small investor or professional portfolio manager, you stay in a winning stock until things change. In the case of fundamental analysis, you stay with a stock until it becomes overvalued or the growth slows or, for some unforeseen reason, the stock just blows up.

In technical analysis, you stay with a stock as long as the signals are positive. In particular, the stock must be doing better than the index, shown by performance relative strength. It needs a positive, 200-day uptrend in price that is outperforming the trend in the market. High-dividend stocks do not ...

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