Two ideas to think about today: First, there are many ways to track relative strength. One of the simplest is just to look at returns (returns are simply a way of saying “percent changes”) over time period (a month, 6 months, a year, etc), but this method suffers from the fact that the “left side” of the window also has an effect on the reading. If a large event happens to pass out of the evaluation window, your return measure which jump, which probably is not what you want. A good solution is to attach the relative strength measures to important pivots in the market: swing highs and lows that mark critical market structure. That is what the chart above has done: major global stock indexes (all in USD please) indexed to zero at the S&P’s pivot high on 11/29/13, so we can see relative performance during the recent pullback. Concept two: the strongest market or group of markets on a pullback will often lead the next rally. Look at Hong Kong. Enough said?