If You Are Holding This Investment, It's Time to Go to Cash

Relative strength (RS) is a useful indicator, but it can be difficult to apply to the broad stock market averages. Although there are minor differences in their short-term moves, the S&P 500, Dow Jones Industrial Average and other indexes tend to move in the same direction over weeks and months. Because RS calculations usually use 3-12 months worth of data, the small differences in the daily price moves are missed and the RS of any index tends to move erratically.

One way that I address this problem is to compare ETFs like the SPDR S&P 500 ETF (NYSE: SPY) to a list of more than 27,000 stocks that trade around the world. This technique shows when SPY is among the best investments in the world, or, at times like this, when it is actually among the worst performers.

With a RS rank of 23 we can see that 77% of the stocks traded around the world are outperforming SPY. At the bottom of the chart is the 26-week rate of change (ROC) of SPY, along with a 39-week moving average of the ROC. This indicator is bearish with ROC below the moving average. (more)