Simplicity is Sophistication in Trading
In my over two decades of investing and market analysis, I have studied a wide range of strategies and indicators. With the advent of complex trading software and technology adding and analyzing these indicators has never been easier. That said, there is an opportunity cost to watching too many things at once – paralysis by analysis. A trap that many amateur traders fall into is following too many indicators. By following too many indicators, traders can fall into the trap of indecision. Instead, investors should focus on a few powerful, reliable indicators. In my experience, the most powerful and simplest indicator to understand is relative strength.
Relative Strength: Use Red Market Days to Your Advantage
Down days like Tuesday and unexpected “tape bombs” are inevitable and unavoidable on Wall Street. Instead of tuning out these down days, veteran traders understand that there is actually far more value in watching them extra closely. That’s because most stocks follow the general market’s direction. In other words, if the Nasdaq is up 500 points, most stocks on your watch list will be green. Conversely, if the Nasdaq falls 500 points, most stocks will be red. That’s where relative strength comes into play.
During blood red down days, a handful of stocks will buck the market weakness. Why is this important? On market down days, the strongest stocks stick out like a sore thumb. Investors should pay close attention to stocks that are green or fall less than the market and their peers. Envision a beach ball held beneath the water’s surface in a pool. The stocks that hold up the best typically spring out of the gate like a beach ball being held underwater when the market eventually firms up. In other words, if a stock doesn’t go down in a tough market, it is unlikely to in a strong one.
5 Stocks Exhibiting Relative Strength
Advanced Micro Devices Ahead of New Product Release
Investors bid up shares of Advanced Micro Devices (AMD) on Tuesday in anticipation of AMD’s Helios Platform and MI450 release. These products could position AMD to take a piece of the massive hyperscale GPU market – a market worth hundreds of billions in revenue. Wall Street analysts expect AMD’s EPS to grow by a healthy 60.33% in 2026.
Image Source: Zacks Investment Research
Baidu Rises on AI Success
Baidu (BIDU), “The Google of China”,driven by positive news that its Ernie AI assistant surpassed 200 million monthly active users and the expansion of its Apollo Go robotaxi service to Abu Dhabi, reinforcing investor confidence in its AI growth story. Additionally,investors are excited about the potential spin-off of its AI chip unit, Kunlunxin. BIDU earns a best possible Zacks Rank #1 (Strong Buy)
Image Source: Zacks Investment Research
ALAB Bucks the Trend
Astera Labs (ALAB) bucked the market weakness on Tuesday. Wall Street expects strong sequential revenue growth and solid profitability, with analysts forecasting continued earnings and sales increases. ALAB shares have regained the 50-day moving average and are building the right side of a multi-month base structure.
Image Source: TradingView
Small Caps Outperform
Finally, the long-awaited market rotation into small cap stocks has come to fruition. Year-to-date, the Russell 2000 Index (IWM) is up nearly 7% while the Nasdaq 100 Index ETF (QQQ) is lower by a percent.
Critical Mineral Stocks Soar on Geopolitical News
Critical mineral stocks likeUnited States Antimony (UAMY) soared Tuesday amid a renewed tariff dispute between the U.S. and several European countries. The Trump Administration has made onshoring critical mineral production a priority.
Bottom Line
The stocks that refuse to drop in a tough market are often the ones that will lead the next leg higher. By utilizing relative strength on down days, investors can identify the best long opportunities.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in the coming year. While not all picks can be winners, previous recommendations have soared +112%, +171%, +209% and +232%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
Baidu, Inc. (BIDU) : Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
United States Antimony Corporation (UAMY) : Free Stock Analysis Report
Astera Labs, Inc. (ALAB) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
