When you see inferior action in the relative strength (RS) line compared to the price performance, don't ever buy the stock. Conversely, when you see a very positive relative strength trend, do not consider shorting it.

In my charts, the relative strength line has a trigger line and when the relative strength line (dark thick line) is above the trigger line (thin line), the long-term is positive, while when the relative strength line is below the trigger line, then the stock is underperforming the Sensex and investors must avoid buying the stock. Thus, relative strength line helps you to zero-in on tomorrow's big winners today.

In the last week, an investor called me from one of the institutions. He, along with the other investors, only followed the fundamental rules and theories for investment. They have been doing quite well, but their main problems were many investments in stocks, which had failed to move in the past one-year or more.

They told me that all of these stocks had an excellent fundamental story, but wanted to know as to why they were not moving. First of all, the stocks which they had picked up were from sectors which have been languishing quite badly and were battered down in the past few years. The relative strength of the sectors was quite bad and unless the sectors improved, there was no reason that the stocks within these sectors would zoom.

In case they moved up during the bull run, their performance would be lagging the Sensex and thus the sector analysis becomes very important along with the relative strength line for the sector and the stocks within the sector. During last week, I informed you that I was again seeing activity building up in a few select sectors and once the major uptrend for the market is confirmed, we will see stocks in these few sectors zooming up.

Thus investors must keep a close watch at what sectors are improving in their relative strength and which stocks within these sectors are bottoming out first.

Today I will take a look at a particular group within the cable sector. The cable sector is subdivided into two groups, namely, the power cables and the telephone cables.

Along with the telecom stocks, which have been zooming, there has been an improvement in the activity in this group.

A detailed study of the stocks within this group will give us a better insight of the performance of the group.

Finolex Cables
Finolex Cables is in a major downtrend as the stock has been exhibiting descending intermediate tops and bottoms. The stock is staying below its 30 WMA and the current intermediate rise will face a strong resistance at the 30 WMA. The relative strength line is below its trigger line and hence it is bearish, but has been moving towards it and could improve if the stock is able to gather some more momentum and move past its earlier intermediate top.

The weekly momentum indicators are below the trigger lines but they have been in this position for a while and could soon move above the trigger line to confirm a major uptrend. Thus the investors must keep a close watch at the stock. The next intermediate downtrend could decide the fate of the major trend in favour of the bulls if the stock exhibits higher intermediate bottom. There has been a rise in the activity in the stocks in this sector and investors and traders must keep a close watch at the stock.

Birla Ericsson
Birla Ericsson is also in a major downtrend as the stock continues to stay below its earlier intermediate bottom and its 30 WMA. The current intermediate rise is facing a strong resistance at this long-term moving average and the intermediate uptrend may fizzle out here. The relative strength line has been staying below its zero line but is moving towards it.

Like Finolex Cables, there has been a rise in the activity in the stock and the next intermediate decline could be the deciding factor for the change in the major trend. Thus investors must not pick up the stock now, but must keep a lose watch at the stock in the coming weeks.

Paramount Co.
Paramount Co is in a major uptrend as the stock has now exhibited ascending intermediate bottom and will cross the earlier intermediate top. The relative strength line for the stock has also turned bullish as the line has moved above the trigger line, which means that the stock is outperforming the Sensex. However, there is a lack of a substantial improvement in the trading volume and unless this happens soon, there is a possibility the stock could languish sideways. Thus investors may pick up small long positions in the stock, but more positions must be added once the volume picks up. Unless there is a rise in the volume, the stock will not exhibit higher levels or could languish sideways.

TN Telecomm
TN Telecomm has been moving up sharply in the past few weeks and could have bottomed out. The stock is above its 30 WMA and is likely to cross its earlier intermediate top of 48. If this happens in the current intermediate rise, the major trend of the stock will turn up. The stock has been moving up smartly and it is likely to cross the earlier intermediate top quite soon. Any minor decline in the stock must be used by traders to get into the stock while investors will have to wait for the next intermediate downtrend or a pull back towards the 30 WMA to get into the stock.

Usha Beltron
Usha Beltron has been moving up quite sharply in the last two weeks and this rise has been accompanied by a rise in volume. This is quite interesting as the trading volumes have zoomed up to an all-time high. Thus, though the stock may have bottomed out here, the major trend of the stock is still down as the stock is well below its earlier intermediate top and its falling 30 WMA.

Thus investors must not be in a hurry to get into the stock at this stage. The spurt in the volume in the stock has been interesting and a higher intermediate bottom will give us a safer opportunity to get into the stock.

Till such time, keep a close watch at the stock.