rate at which a stock falls relative to other stocks in a falling market or rises relative to other stocks in a rising market. Analysts reason that a stock that holds value on the downside will be a strong performer on the upside and vice versa. Comparative relative strength, as the concept is more accurately called, compares a security's price performance with that of a "base security," which is often a market index. The security price is divided by the base security's price to get the ratio between the two, which is called the comparative relative strength indicator. When the indicator is moving up, the security is outperforming the base security and vice versa.
Comparative relative strength should not be confused with what technical analysts call the relative strength index (RSI). The RSI is a momentum indicators developed by J. Welles Wilder in the late 1970s and discussed in his book, New Concepts in Technical Trading Systems. The name relative strength index is somewhat misleading since it does not compare the relative strength of two securities, but rather the internal strength of a single security. The RSI measures the relative strength of the current price movement as increasing from 0 to 100. Although many variations are in use, Wilder favored the use of a 14-period measurement and set the significant levels of the indicator at 30 for oversold (signaling an imminent upturn) and 70 for overbought (signaling an imminent downturn). Thus the averages of up days and down days for 14-day periods would be plotted. If the security makes a new high but the RSI fails to surpass its previous high, this divergence is an indication of an impending reversal. When the RSI then turns down and falls below its most recent trough, it has completed a "failure swing" which confirms the impending reversal.
