Region of serious under-performance

Unacceptable performance

When the relative strength starts to fall below the 45-degree bearish resistance line the under-performance has become serious. Portfolio managers should be reluctant to hold/purchase any stock that is moving back and forth below the bearish resistance line. In my opinion, signals are not as important as the position of the stock relative to the bullish support lines and the bearish resistance lines.

Stocks that undergo serious long-term fundamental deterioration will remain below the bearish resistance line for many months.

Time period covered – all charts are programmed to cover four years of history. Volatility effects how much time the chart covers.

Low volatility – Long time period

The chart on ABT covers less than half the graph and yet it covers almost three full
years of relative strength movement. The fluctuations of the stock relative to the market were fairly modest indicating low risk even though the stock declined for over a year relative to the market.

High volatility - Intermediate time period

An example of high but not extreme volatility. The time period is almost a year.