Relative performance analysis, also known as relative strength, tells us which stocks are leading in any market environment. Theoretically, the stocks that hold up best as the market pulls back are the ones that will lead when the correction ends. After all, if investors like a stock, it will be the last one sold in times of uncertainty. That’s indicative of demand.
Most of the leading stocks in the current bounce are the stocks that were the most beaten down. Pixabay

Unfortunately, the stocks that are leading in the market bounce that began two weeks ago are not the prior winners. With exception, most are stocks that were the most beaten down. The only conclusion I can draw is that bargain hunters are driving the rebound and a real change of mood to the bullish side is not happening.
Let’s start with the good news. Of the so-called FANG stocks – Facebook,, Netflix and the former Google, now called Alphabet, two, Facebook and Alphabet are back in new high ground and outperforming the market. Today, Alphabet announced better-than-expected results and shares soared after the close to a record high.
Relative performance or relative strength is simply a ratio of two stocks or a stock to an index. If the performance of the first item – Facebook - is better than the second - the market - then the relative performance chart slopes higher. If the relative performance chart starts to change, technical analysts get a potential early warning signal that the stock may be about the change course for the worse.
While Facebook did pull back between November and January its relative performance vs. the Standard & Poor’s 500 remained flat (see Chart 1). In other words, after months of outperforming the market, all this stock did was take a breather by merely matching the market.

Chart 1


Compare that to Apple. Its relative performance chart peaked in May 2015 and did forewarn that the bullish trend was over even though prices remained flat for several more weeks (see Chart 2). With Alphabet’s rally today, Apple is no longer the biggest company by market capitalization.

Chart 2


This is important because the gang of four FANGs was widely recognized to be the market’s hot stock group. With only two coming out of corrections with strength, this leadership group is really not leading anymore.

Long before the FANG acronym was in vogue, there was a group some called the market’s generals. It included the four FANGs and added such stocks as coffee purveyor Starbucks , biotech leader Gilead Sciences, sneaker maker Nike and, of course, Apple. The list is subjective as everyone had their own favorite leaders but the concept was the same. As goes the generals, so go the soldiers.

Right now, we can argue for the return of Starbucks to the fore with its strong breakout from a three-month slide (see Chart 3). It sports a clear change of trend, supported by such technicals as rising on-balance volume and relative strength. Also, its decline, while drawn out, was rather mild just as we’d expect from a leader.

Chart 3


The bad news is that a very large percentage of the stocks that populate the leaderboards right now are not quite the same as these generals. Monday morning, the percent price leaders on the New York Stock Exchange excluding stocks involved in takeover activity were mostly last year’s biggest losers.

For example, US Steel ( USX ) was up nearly 5% intraday but it set a 52-week low last week.

Blood management company Haemonetics  released good third quarter results before the bell and the stock jumped over 8% in short order. Here, too, it traded at a 52-week low in January after losing a third of its value since last March. That is not exactly a surge back into a strong stock. Rather, it is hope for a technical turnaround that may or may not happen.

The leaders list is littered with gold stocks and biotechs. The former may be stabilizing after a bear market and the latter have been falling since last summer. The rush back to scoop up good stocks at cheaper prices so far is absent.

The point is that these are losers that got some interest and not leaders that are back in the lead.

That’s not a good condition for the bulls.

Michael Kahn, a longtime columnist for, comments on technical analysis at A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.