Short Weak Stocks; Part 2 - Absolute and Relative Weakness $study $akam $klac $spy

In the last post I mentioned the need to short weak stocks rather than strong ones. However maybe I should have said that the really important point is to short relative weakness. Let me clarify with two trades I took yesterday.

-AKAM was basically a weak stock yesterday. It underperformed the SP500 in absolute terms.  However what really made me short it was its behaviour around 14:40 where it began to exhibit pronounced RELATIVE WEAKNESS....the SP500 was making new highs and AKAM was popping up in my daily low screen. So here we have a stock that through its ABSOLUTE WEAKNESS indicated it would be a good intraday short, and that through its RELATIVE WEAKNESS confirmed and triggered my trade.

                                         

-KLAC on the other hand was a very strong stock yesterday...it exhibited clear ABSOLUTE STRENGTH. I was tempted to short it but waited for RELATIVE WEAKNESS to manifest itself, which it did from around 14:00 onwards.

Basically paying attetion to the relative perfomance will give you a hint that its ok to put on a short by showing that a weak stock is not simply establishing the low of a range, and that a strong stock is not simply making a pullback before going higher again.