Finding Outperformance in a Choppy Market

If we go back 20 months in time, the stock market is up only 3.5%.  If you look back about a year ago, we’re only talking 1.5%.  In other words, the good times we experienced in 2017 have been largely followed by almost 2-years of volatility and choppiness that, when smoothed out, hasn’t resulted in much to be all that excited about.


Here’s a look at the S&P500 going back one year:


  • We see the May highs, then a pretty big pullback
  • Then we see a breakout in July,
  • Followed by another pullback in August,
  • Followed by a higher-low, and
  • A struggle for the market as a whole to get back above those all-time highs a couple months ago!

Now, on the other hand, there are places in the market we can go to find investments that are displaying a more sunshiny picture.  These investments are outperforming the market, which is something we call “Relative Strength” or just “RS” for short.  I’ll share three of them with you today, so let’s start with the Aerospace and Defense sector.  Comparing it to the market as a whole (above), I see:


  • Sideways movement (instead of a big pullback) in May,
  • A breakout from the sideways consolidation in June, and
  • Higher-highs… a really nice, strong, healthy uptrend!

Here’s a basket of clean energy stocks, which is obviously a completely different group of companies as compared to the defense and airline stocks shown above.  Still, I see:


  • A slightly deeper pullback in May, but still nothing compared to what we saw in the overall market,
  • Again, a breakout in June, and
  • More higher-highs (i.e. – an uptrend)

Finally, below is a basket of Homebuilders stocks. In this case, we see more volatility than the previous two, but what’s most important is that we see consistently higher-highs, higher-lows, breakouts, and all-time highs.  In other words, to reiterate once again, a strong, healthy uptrend, which is exactly the kind of stuff we want to own when the market is struggling to find its own all-time highs.

We all want “absolute returns,” which simply means to “make money and not lose money.”  However, there are times when the stock market doesn’t deal us many good cards to play, and in those times, we have to dig deeper, perform more analysis, and find ways to play the game of investing in a way that works to stack the deck in our favor!


Till next time…


Categories: Adam Koos, CFP®, CMT®, Market Commentary

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