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Update on trades using my new Performance Ranking method

June 3, 2013

On 06 May, I introduced my new Performance Ranking (PR) method. I showed that when divergence forms between a relative strength line and the PR, supported by a RSI divergence, that this is a good candidate for a reversal.

I showed the example of the DJ Food Index vs S&P500 Index, which has produced many reversals in this way. There was an RSI divergence in early May, backed up by a PR divergence, putting the outperformance of the sector in question.

Here is the up to date chart

DJ Food Index vs S&P500 Index and PR

DJ Food

The RSI and PR divergences have led to a reversal. On the daily chart, there was an RSI divergence on the 19 April high. The PR can also be seen.

There were two factors making this a less than ideal case at the time.

  1. The market indices were not even potentially forming a low, which tends to be the case when this sector relative peaks, being a defensive sector
  2. The PR divergence had not formed over a months, like previous examples

These proved not to matter, for the last month at least and so whilst not an ideal trade entry, anyone allocating funds across sectors should pay attention to PR and RSI divergences and make sure that they are at least not overweight a sector in this situation.

Oil Service pair starts to rally from Performance Ranking divergence

The pair of National Oilwell Varco (NOV) vs iShares Dow Jones US Oil Equipment Index (IEZ) was entered at 1.18973 on 24 May.

The position shows a 2.5% gain so far. I will move the stop loss to break even already.

National Oilwell Varco (NOV) vs IEZ (weekly chart)

National Oilwell Varco (NOV) vs IEZ (daily chart)


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