Traders and investors seeking to gain an ‘edge’ in the stock market could do a lot worse than relying on relative strength rankings as they attempt to deploy their trading capital into stocks and ETF’s that are outperforming those from a wide variety of sectors and industry groups.

Running a simple Metastock exploration on a basket of 45 diverse ETF’s (covering everything from emerging markets, stock indexes, US stock industry groups and commodity-linked stocks) reveals a couple of important details, first, that the Chinese equity market has once again recovered and is on a fresh tear, and second, that the basic materials and energy sectors are back on track for further gains, as evidenced by the strong rebound in steel, gold mining, oil/gas and coal related stocks. If you think about it, it’s easy to see the correlation between a recovery in the Chinese markets and that in the coal and steel industry groups; as China’s economy bounces back from a temporary slowing in its former torrid pace of GDP growth, even greater quantities of coal and steel will be required, not to mention every other conceivable kind of raw material including energy and agricultural products. Anyway, here’s a list of the top five ETF’s, based on a weighted score of their respective 3,6 and 12-month price gains (see attached image for more detail):


Note that while the coal (KOL) and steel (SLX) ETF’s are still down significantly from a year ago, their respective 3 and 6 month returns are nothing less than astounding. And since recent market performance is more important than that of the past 12 months, astute trades and investors should keep a close eye on all five of these ETF’s. Trends tend to persist, so there could be some exciting long trade entry opportunities for those able to time short-term daily pullbacks against these emerging trend moves.

In future commentaries, I hope to share a variety of methods that can be applied to relative strength-based trading as well as those that can be implemented in day, swing and position trading methods.