It's All Relative
Updated: Apr 14, 2020
SCTR is a relative ranking system which incorporates six (6) key technical indicators covering 3 different time frames (long-term, medium, and short-term) including 200-day ma, 125-day rate of change, 50-day ma, 20-day rate of change, 14-day RSI and Percentage Price Oscillator. This technical ranking system uses a numerical score from 0.0 to 99.9 to rank every security within a market, sector, and industry against its peers. Stocks with SCTR ranking over 90 tends to be the strongest in the group and stocks below 10 are often the weakest. In general, a SCTR score between 40 and 60 are considered average. Signs of technical weakness begins as SCTR scores start to decline below 40. Signs of technical strength emerge when SCTR scores move above 60.
The SCTR score considers multiple timeframes and puts more weights on the long-term technical indicators over the short-term indicators. The overall SCTR score is comprised of 60% weighting on the two long-term indicators (200-day ma and 125-day rate of change). The two medium-term indicators (50-day ma and 20-day rate of change) accounts for 30% of the overall SCTR score and the two short-term indicators (14-day RSI and 3-day slope of PPO) are the remaining 10% of the total SCTR score.
The key word is relative. SCTR score is a relative measure that compares one stock to other stocks within a specified sector, group, or market. Since this is a relative measure it does not convey how the group or sector is performing as whole. That is, if the group has performed poorly, and one stock stayed at the same level of performance, then it is possible that the stock’s SCTR rank may rise relative to the other stocks within the specified group. Also remember, just because of a stock’s SCTR rank rises does not imply that it is performing well. Rather it is implying that this stock is not performing as poorly as the other names within its universe.
When accompanied by other technical disciplines it can be a great way for an investor to identify technical leadership names that may outperform their peers based on the performances of the six technical metrics across three different timeframes. On the downside, it can also be a useful technical tool to uncover underperforming securities within a sector, group, or market.
In our weekly technical reports (Lee Technical Strategy Newsletter) we have listed the top 10 SCTR ranked large-cap names and the associated charts on a weekly basis. The objective is twofold – to identify the outperforming large-cap names for the week but also to identify the sectors and industries that are consistently showing up on the weekly SCTR scans.
Enclosed below is a list of the top 100 large cap stocks ranked by SCTR scores as of 4/7/20. It is interesting two sectors continue to consistently dominate the top 100 SCTR list. In fact, half of the list is comprised of these two specific sectors. There are 30 Healthcare names and 20 Technology stocks ranked in the top 100 large-cap SCTR list. Upon further review, 5 of the top 10 SCTR scores are Technology names and 2 are Healthcare names.
It is reasonable to expect investors to focus on the Healthcare sector and specifically on the Biotechnology industry due to the ongoing Covid-19 pandemic. Because of the defensive nature of the Healthcare sector investors may turn to this area during periods of market uncertainties. Another explanation for the recent active interests in the Healthcare group is the long-term demographics trend and its secular growth story. Technology sector remains an important area from two perspectives. First, this sector is a structural growth industry. Many investors turn to this area to whether the cyclical downturns. Second, Technology is also one of the largest market cap weighted group within the S&P 500 Index (SPX) and the NASDAQ NDX Index (NDX). Professional money managers and retail investors seek out the liquidity of many of the blue-chip Technology names.