When the markets get wobbly and stocks start to get flustered, I tend to look for the best performing names via the RSI, or the relative strength index. This indicator captures the best names on a relative price basis vs an index. While money flows from stocks during a distribution phase, not all stocks retreat – and this is where the RSI comes in handy. On the worst day last week for the markets, high beta name Netflix posted a slight gain, which was the signal that sellers were not interested. Hence, a big Netflix rally ensued the following day.
LinkedIn has been a stellar performer since breaking out past 171 on volume in late July, and it recently surged back into the 200’s post-earnings. Prior to the earnings report, it had been a laggard behind fellow social media names Facebook and Twitter. Note from the chart below the incredible move it made – and it has not let up. While it is probably overheated now, the chart shows some good reference points for an entry we can use when the stock finally cools down.
Many analysts and pundits think the market is due for a correction, and that may well be the case, but there are some names like Netflix and LinkedIn that refuse to bow down. Another chart that looks similar but is in a completely different sector is US Steel; it too has incredible relative strength. Taken together, these names prove once again that you have to watch the charts and not listen to the noise!
LinkedIn charts
US Steel charts
