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  • Jay

Absolute vs Relative

Here's a great example of why we should always look at the price action on a relative as well as on an absolute basis.

This is the iShares MSCI Malaysia Index Fund ETF ($EWM) weekly chart.

From mid-late 2012 till mid 2014, $EWM on absolute terms was still in a slight upward trading range, even-though the price was zigzagging across the 40-week moving average (which represents the 200-day moving average), the moving average itself was still sloping up.

During that same period, on the lower part of this chart, the price on relative terms to the $ACWI (All Country World Index) was already rolling over, i.e. slowly breaking down.

In plain english this would simply mean that while $EWM price was still going up, the general market represented by the ACWI was stronger, therefore $EWM was under-performing. This under-performance is best known as opportunity cost.

Fast forward to 2017, $EWM has had a great year as it broker out of its 40-week moving average, came back down to test it, and has since been rallying.... in absolute terms... How about on a relative basis? As one can see, it is currently in a bottoming process and could soon become an out-performer of the general equity index?

$EWM weekly

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