IBD's relative strength line, or RS line for short, is one of the most effective indicators when looking for breakout stocks and watchlist stocks alike.
With IBD's current market exposure recommendation being between 0% and 20%, it may not be the best time to look for stocks to buy. But it's still important to stay engaged so when the market does turn around, investors are ready to take advantage quickly. Screening for stocks with a RS line at new highs is an effective way to find great stocks for your watchlist.
These RS line leaders are often the stocks that have the potential to be stock market leaders when the uptrend resumes.
A stock's RS line gauges a stock's relative performance vs. the S&P 500. If the line is trending up, that means the stock is outperforming the S&P 500. If it's going down, the stock is lagging the S&P 500. The RS line is found in all IBD Charts, plotted in blue.
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The line is great at identifying leaders, but just because a stock is showing strength doesn't necessarily mean it's a true leader. Some stocks might try to break out with lagging RS lines. The strongest performers, however, tend to have RS lines that lead the stock into new high ground.
IBD's premium charting tools allow investors to change what index or ETF a stock is compared to. For example, if you're researching an oil and gas stock, you could compare it's relative strength to an oil-specific ETF such as United States Oil Fund rather than the broad-based S&P 500. This may offer a more nuanced picture of a stock's underlying strength.
RS Line List Gives Breakout Stock Ideas
Investors can use IBD's RS Line At New Highs stock list to search for fresh stock ideas, as well as new watchlist candidates. To find this list, go to the navigation bar on the top of this webpage and hover over "stock lists." In the third column, look for the screen named Relative Strength At New High. Here you'll see a list of stocks showing notable relative strength in the current market.
One such promising example from this list is aerospace and defense stock Heico. From November through March of this year, the potential breakout stock formed a cup-with-handle base (1). At the March 25 breakout (2), the RS line was at new highs (3).
Shares are now trading just below the buy zone from a 270.37 buy point. The buy zone extends to 283.88.
