EarningsBeats.com Digest

Published: Fri, 12/20/19

EarningsBeats.com Digest for December 20, 2019

Dear EarningsBeats Digest Member,

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Don't be Misled by Temporary Relative Strength

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Through nearly all of my work, I discuss the importance of relative strength and how it tells us a story. But we do have to be careful. Not all relative strength is good relative strength. Take, for instance, stocks that have been behaving very poorly, downtrending on both an absolute and a relative basis for months and months, perhaps even years. You'll see periods where the stock is crushed, but then rebounds for a period of time....only to get crushed again. Need an example? Check out ABIOMED, Inc. (ABMD):

There's no doubt that ABMD has been trending lower throughout 2019, is there? But from August through the 2nd week of October, ABMD was really freefalling, dropping 27% in the process. That set up a rebound for a month that looked like the real deal. Check out the relative strength vs. peers and vs. the benchmark S&P 500. All signals were pointing to a buy, correct? Well, not so fast. While relative strength is definitely a factor in my buy/sell considerations, it ALWAYS takes a back seat to the actual price action on the chart. Clearly, the strength that we saw for 30 days was nothing more than a rebound to test the bottom of gap resistance near 225. Once that was tested, ABMD rolled over and the downtrend resumed.

Happy trading!

Tom Bowley

Chief Market Strategist

EarningsBeats.com
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