When Relative Strength Is Disguised

Anyone who's followed me for awhile knows how important relative strength is to me as a trader.

I want to own stocks that lead their industry groups higher. And it always helps if the industry is leading the S&P 500 higher as well. Leading stocks in leading industry groups, that's what we're looking for. Well, sometimes the start of relative strength is not clearly visible. Let's take the semiconductors ($DJUSSC), for instance. This group has arguably been amongst the best industry groups of 2023, but it's taking a very well-deserved pause right now. It's hard to see, but there are semiconductor stocks starting to show relative strength, but it's not really clear, because the group has been weak. Check out Applied Materials (AMAT):

Enter Applied Materials, Inc. (AMAT):

While AMAT's price action has been quite solid, it actually struggled vs. its semiconductor peers throughout 2023. I believe that's changing as rotation is now beginning to favor AMAT. It bottomed vs. the DJUSSC in mid-July and has been uptrending since. But the DJUSSC itself has been falling, so AMAT's recent pullback looks like it's just following its peers lower. Instead, however, I see its relative strength perking up and its AD line is quite strong as well, suggesting recent Wall Street accumulation. AMAT reported its quarterly results last week and they were much better than expected. Obviously, AMAT's performance will be impacted by the overall market behavior, but don't be surprised if you see AMAT's relative strength line pushing higher and higher through year end.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.