The Price Relative compares the performance of one security against that of another. The price relative offers a straightforward and accurate portrayal of a stock's performance relative to the market. This number is then plotted along the Y-axis to form a line chart. Traditional technical analysis techniques can be used to analyze the plot of the price relative. Support , resistance , trendlines , moving averages and pattern analysis can all be applied.
Some analysts even apply indicators to the price relative in an attempt to identify changes.
The support and trendline breaks in the stock occurred later than those in the price relative. A sharp decline in the stock was foreshadowed by weakness in the price relative. This created a positive divergence and signaled that SUNW was much stronger than the overall market. When the October-1998 rally kicked in, SUNW was one of the top performers over the next 17 months. Rotation among sectors and stocks plays a big part in today's market.