The triangle above shows the region of excess return relative to the market. The 45-degree bullish support line defines a region where a portfolio manager should try to position his/her holdings. As long as the relative strength fluctuates back and forth above the bullish support line the relative performance is acceptable.
Big winners in the stock market will experience runs in relative strength that will carry the relative strength above the bullish support lines for many months. The steeper the rate of gain the higher the excess return for the stock.
By W. Clay Allen CFA
Next: Region of serious under-performance
Summary: Index