While the typical approach to relative strength analysis begins with identifying the best asset class, followed by top sectors, and finally digging into those sectors to find the best-performing stocks, this method has its pros and cons. This approach can unveil exceptional companies, and holding these investments for 6 to 18 months generally yields excellent returns. However, critics argue that top-performing stocks may have already run too far, making them difficult to purchase for client accounts.
Best practices for SIA practitioners suggest starting with the Asset Allocation tab and reviewing the Sector Report, allowing your focus to narrow in on top-performing areas. Nevertheless, there is an alternative method worth considering. While the SIA Platform excels in top-down analysis, we will illustrate how it can also be employed for bottom-up technical analysis. Recently, we demonstrated this technique by identifying promising China investments ahead of the stimulus package that significantly boosted its stocks.
To spot these opportunities, we need to add a secondary layer of sector analysis focused on relative strength gainers. This can be easily accomplished by clicking on the weekly/monthly/quarterly relative strength change button, which re-sorts the sector list to highlight those sectors that are rising most quickly against the market. We recommend performing this analysis at the end of the week, month, and quarter as a best practice. This is how we identified the China move well in advance of the substantial rally that followed, as relative strength moves typically precede actual market rallies.
In the first table, we applied this exercise and highlighted the fastest relative strength movers from an asset class and sector perspective. Notably, China has risen the fastest, moving up 20 positions within the sector matrix over the past month, followed by Natural Resources, which climbed 16 spots. Interestingly, Infrastructure has emerged as the third fastest mover. With a year-to-date return of 14.37% compared to a -17.60% return over three years, this sector appears to present an emerging opportunity.
While it may be early for traditional top-down analysis, we can pivot to a bottom-up strategy for further exploration. Next, we turned to the SIA ETF Reports tab (for both Canada and the U.S.) to find the Infrastructure Equity Sector Report. Top-performing ETFs in this growing sector include iShares Global Infrastructure and Global X U.S. Infrastructure ETF. These ETFs represent several high-performing opportunities, but our goal is to identify a specific stock for today’s Daily Stock Report (DSR).
As a final step, we conducted a quick Google search for the holdings of these ETFs under the Portfolio tab, providing us with a foundation for future analysis as this sector strengthens in the coming months. After a brief wait, the SIA System generated a Relative Strength matrix of these holdings, resulting in a ranked list of equities driving this early relative strength sector move. With year-to-date returns exceeding 100-200% among the top names in this infrastructure list, we might be tempted to categorize this sector as a momentum play. However, it's important to note that infrastructure is still seen as a lackluster sector, currently positioned in the red zone of the SIA Sector Reports at spot #42. Thus, we might liken this sector to a bag of popcorn—starting to pop but still filled with unpopped kernels, indicating that only the early leaders are emerging.
Potential candidates like Argan Inc (AGX), Powell Industries (POWL), Vistra Corp (VST), Tutor Perini Corp (TPC), Constellation Energy (CEG), Comfort Systems (FIX), Carpenter Technologies (CRS), Howmet Aerospace (HWM), Hawkins Inc. (HWKN), EMCOR Group (EME), and Trane Technologies (TT) warrant consideration as valuable opportunities. However, our focus today is not on the top names that have already experienced substantial rallies, but rather on stocks that are moving up the list. In this vein, we find Tetra Tech Inc (TTEK), which is up a modest 46% year-to-date, making it the focus of today’s Daily Stock Report. Tetra Tech is an American consulting and engineering services firm based in Pasadena, California, providing services in water, environment, infrastructure, resource management, energy, and international development. With a market cap of $13 billion, TTEK has climbed 10 spots on this customized Infrastructure matrix and has recently entered the favored green zone of the report. Having consolidated sideways for nearly four years, as indicated by the black box on the 2% scaled point-and-figure chart, TTEK has now broken through resistance at $37.44, indicating a potential move to higher valuations. Resistance levels can be calculated using a vertical count derived from the consolidation, initially at $53.47 and further at $60.22, allowing for significant growth potential. Moreover, Tetra Tech has achieved a perfect SIA SMAX score of 10 out of 10, underscoring its outperformance compared to other asset classes and the 200 names in the custom-built infrastructure report.
In closing, we hope this exercise illustrates how swiftly the SIA Platform can be integrated into your practice. It demonstrates that SIA is not just a momentum finder; it can enhance your existing tools, research services, and your overall investing brand. One constant is that our system identifies market-beating opportunities while statistically eliminating laggards. For personalized assistance and to explore how SIA can enhance your investment strategies, don’t hesitate to reach out to your SIA account manager today!
Disclaimer: SIACharts Inc. specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investors investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIACharts Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.
