Relative strength and market breadth: ratio lines, A/D and % above MA

A stock that rose 20% in a year sounds strong, until you learn the market rose 30%. Relative strength answers the question every investor eventually asks: is this doing better or worse than the alternative? Market breadth asks a related question about the market itself: is a rally carried by most stocks, or by a few large ones dragging the index along?

Both ideas are older than most indicators, and both are easy to misread. This guide explains how to build a relative-strength ratio line, how to read it, and why it has nothing to do with the Relative Strength Index. It then covers the main breadth measures, computes two of them on a basket of 30 large US stocks, and is explicit about what Finabase's data can and cannot show.

Relative strength: the ratio line

The calculation is a single division, done every bar:

The level of the ratio is meaningless on its own. Its direction is everything. A rising line means the stock is beating the benchmark over that stretch, whatever the market did. Rebasing to 100 at the start makes the numbers readable: a value of 124 means the stock has done 24% better than the benchmark since the start date.

The difference between relative and absolute performance is not a technicality. A fund manager measured against the S&P 500 lives on the ratio line. An individual investor deciding between a sector fund and an index fund is making the same comparison, whether or not they draw it.

Not the RSI

The naming is unfortunate. J. Welles Wilder's Relative Strength Index compares a security only with its own recent gains and losses; it does not involve any second security. "Relative strength" in this article always means a comparison between two securities. Some services also publish 1–99 relative-strength rankings that score a stock's past return against all others, and some normalize the ratio line against its own 52-week average. Those are variations on the same idea, not the RSI.

Reading a ratio line

• Trend. A ratio line in a steady uptrend identifies leadership. Trendlines and moving averages work on it just as they do on price.
• New highs first. A ratio line that reaches a new high before the stock's price does shows the stock outperforming even in a weak tape, which many traders watch for at the end of a correction.
• Choosing the benchmark. Compare a stock with its sector fund to see whether it is a leader within its group, and the sector fund with the S&P 500 to see whether the group is in favor. A small-cap stock is better measured against a small-cap index.

Four ratio lines, 2024–2026

Over these two years SPY rose 32.6%. Against it:

Three lessons stand out.

Rising prices can hide weakness. Utilities rose 9.1%, a respectable absolute gain, yet the XLU ratio line fell 17.7%. An investor who held utilities was paid, but paid less than one who held the index. Dividends narrow that gap somewhat, because utilities pay higher yields than the index, but they do not close it.

Leadership changes. XLU's ratio peaked on April 22, 2025, near the bottom of the spring sell-off, when defensive sectors were in demand. Technology's ratio bottomed in the same weeks and then rose more than 40% from its low to its June 2026 high. This is the sector rotation that market commentary describes, visible as two ratio lines crossing.

Equal weight versus cap weight is itself a breadth measure. SPY weights its holdings by Market capitalization: formula, free float and enterprise value, so its largest companies dominate. RSP holds the same stocks in equal amounts. When the RSP/SPY line falls, the average S&P 500 stock is doing worse than the index, meaning the biggest companies are carrying it. That line fell for most of these two years and hit its low on October 7, 2026, the day after SPY's record close.

What the research says

Relative strength as a selection method is one of the better-documented patterns in finance. Robert Levy argued for it in 1967. Narasimhan Jegadeesh and Sheridan Titman showed in 1993 that US stocks with the best returns over the past three to twelve months tended to keep outperforming over the following months, by roughly 1% a month before costs in their sample, an effect now called momentum. It has since been found in many markets. It also fails badly at times: Kent Daniel and Tobias Moskowitz documented sharp "momentum crashes," most famously in 2009, when beaten-down past losers rebounded violently. Momentum is a statistical tendency across many stocks, not a forecast for any one ratio line.

Market breadth

An index can rise while most of its members fall, if the few that rise are large enough. Breadth measures look past the index level to count participation.

The classic warning is a breadth divergence: the index makes a new high while the advance/decline line or the share of stocks in uptrends does not. It is the same idea as a price-versus-momentum Divergence: regular and hidden, bullish and bearish, with RSI and MACD. A narrow advance relies on fewer stocks and can be more fragile. The other side is equally important: at the bottom of a sharp sell-off, breadth often reaches extremes, with nearly every stock below its moving average, and it is the improvement from those extremes that many technicians watch.

A 30-stock breadth example

True market breadth uses thousands of stocks. To show the mechanics with data we can verify, we computed two breadth measures on a small basket: the 30 stocks that made up the Dow Jones Industrial Average after its November 2024 change. Each stock counts once, regardless of price or size.

• The washout. On April 7–8, 2025, only one of the 30 (3%) was above its 50-day average. Two months later, on June 6, 80% were. That swing from extreme weakness to broad participation is the kind of breadth thrust many technicians look for after a sell-off.
• The divergence. The basket's advance/decline line peaked on August 7, 2026. On September 30, SPY closed just 2% below its record, but only 27% of the 30 were above their 50-day averages. When SPY set a new record close of $779.09 on October 6, the A/D line was still well below its August peak and only 30% of the basket was above its 50-day average.
• The outcome, so far. Narrow breadth did not stop the record. By October 29, 70% of the basket was back above its 50-day average, while SPY sat about 1% below its high. Breadth divergences can resolve with stocks catching up, not just with the index falling.

How to use relative strength and breadth in Finabase

Relative strength. Finabase does not draw a ratio line. It draws the closest equivalent, a percentage comparison: the symbol page's comparison tab and the compare symbols on the chart plot each symbol's percentage change from the same starting point in the window you are viewing. The gap between two lines is their difference in return; to get the relative return exactly, use the formula above, (1 + stock) ÷ (1 + benchmark) − 1. Saved comparison sets live on the Comparison page and are shared with the Stock Master app. The Sectors page ranks the 11 S&P 500 sector indexes over a day, a week, a month, a quarter, half a year, a year and year to date, and Performers lists the best and worst stocks over a chosen period: both are quick relative-strength rankings.

Breadth. Finabase shows breadth as it stands today, not as a history. The Sectors page counts advancing and declining stocks in each of the 11 sectors, and each sector's page lists its members ranked by today's move. The heatmap colors every S&P 500 member by today's change, which makes a narrow or broad day obvious at a glance. The Scanner lists the stocks making 52-week highs and lows and crossing their moving averages today, so you can count them. What Finabase does not offer is a stored advance/decline line or a percent-above-moving-average series over time; charts like the one above have to be built from individual stocks.

Frequently asked questions

Is relative strength the same as RSI?

No. Relative strength compares one security with another, usually a benchmark, by dividing their prices. The Relative Strength Index measures one security's recent gains against its own recent losses. They answer different questions.

What benchmark should I use for relative strength?

The one that represents your real alternative. For most US large-cap stocks that is the S&P 500 (SPY). For a stock within a sector, the sector fund shows whether it leads its group. For small caps, a small-cap index such as the Russell 2000 (IWM).

What does a falling advance/decline line mean?

More stocks are declining than advancing on balance. If the index is rising at the same time, the gains are concentrated in fewer, usually larger, stocks. It is a warning that the rally is narrow, not a signal that it will end.

Does strong relative strength mean a stock will keep outperforming?

Not reliably for any single stock. Across large groups of stocks, past winners over three to twelve months have tended to keep outperforming for a while, but the effect is statistical and has suffered sharp reversals.

Summary

Relative strength and breadth both look beneath a headline number. A ratio line shows whether a stock or sector is beating its benchmark, which a price chart alone cannot, and it showed technology leading and utilities lagging sharply over 2024–2026, even as both rose. Breadth measures show whether an index move is broad or carried by a few stocks. The equal-weight S&P 500's 6.9% shortfall against SPY and our basket's weakening breadth in September 2026 both pointed to a narrow market, and SPY still made a record. Use both as context for what kind of market you are in, not as timing signals.