Relative Strength is a trade taught on most desks.  When you notice the market is weak and a stock cannot go down, this shows relative strength.  Conversely when the market is strong and a stock cannot go up, then we conclude it is weak.  Today we saw a relative strength play in HOG.  Let’s discuss.

After 12PM SPY was strong.  SPY made a strong move from 85.50 to 87.10 after 2PM.  Meanwhile HOG failed at 18.70. HOG failed at 18.60.  HOG failed at 18.50.  As the market was strong HOG could not trade higher.  Into the close HOG could not trade above 18.54.  Alex who sits next to me relayed its weakness to me.  

I started a short position at 18.52.  Then the market came off.  SPY pulled back to 86.83ish, right to the trendline.  This trendline held the first time.  Later SPY retested 87.10ish but failed for the second time. Then SPY blew through the SPY 86.83ish level and its intraday trendline.  This fast and powerful downmove through the SPY trendline was our cue that the market was about to reverse.

HOG cooperated and sank below 18.  I covered some at 17.91.  This is an easy trade.  HOG never traded above 18.54.  HOG was in an intraday downtrend.  HOG had the potential to fill its gap down towards 17.  So we had an excellent risk/reward set up with our short.  When the market reversed HOG tanked.  When I saw some support at 17.90 I covered.  But the relative weakness that HOG demontrated as SPY traded up strongly was our evidence it was a short. Good job by Alex finding this relatively weak stock.  

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