How Smart Momentum Beats Relative Strength

TRENDRATING VS. DORSEY WRIGHT

A LOOK AT HOW SMART MOMENTUM CAPTURES TRENDS LONGER THAN RELATIVE STRENGTH AND PERFORMS BETTER DURING REVERSALS

2017 was a strong year for the US markets, with the S&P 500 up 20% and the MSCI USA Momentum Index up 38%. It was also a strong year for active managers, as dispersion in the market increased after years of below average levels. The ability to pick the winners was not an easy task, as can be seen below:
Top 10 Stocks Performance
NRG 131%
ALGN 130%
FSLR 107%
VRTX 101%
WYNN 93%
BA 89%
MU 86%
NVDA 85%
DHI 84%
PYPL 83%
Bottom 10 Stocks Performance
UAA -50%
RRC -49%
SCG -46%
GE -45%
CHK -45%
MAT -44%
AAP -42%
SIG -40%
APA -35%
FL -34%
The question isn’t just how early Trendrating and Dorsey Wright were able to identify these trends, but also the frequency of signals. The data below takes a look at these best and worst stocks, and shows how you could have fared using these two services.
Findings:
• DWA issued significantly more buy and sell signals through the year
• In the 20 stocks analyzed, Trendrating resulted in a higher ending value 80% of the time (1 was a tie)
• Both models would have protected against significant losses for the bottom 10 stocks
• Trendrating captured 33% more upside than Dorsey Wright for the 10 best stocks in 2017
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