Relative Strength with Commodities

This chapter discusses the application of relative strength (RS) with commodities. RS measures how one security is doing compared to another. This comparison allows determining which security is outperforming the other. When interpreting an RS chart, there are two main points to determine—the most recent signal given on the chart and the current column. The RS signal is typically a longer‐term measurement of relative strength, while the most recent column is more indicative of the shorter‐term RS of a given commodity. Not only is relative strength useful when measuring a commodity versus a broad commodity index but it is also a viable tool to use for peer evaluation or for determining strength within a commodity group or sector. The chapter also explains how RS can help determine in a broad asset allocation respect whether or not commodities as an asset class deserve investment dollars.