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75% of a stock's move is dictated by the market's direction.
Down markets are the best time to look for RS.
AAOI, SNDK, & NBIS are exhibiting robust relative strength.
Most Stocks Follow the Market’s Direction
Savvy investors understand that roughly 75% of a stock’s move is attributed to the general market’s direction. In other words, if the S&P 500 Index is up, chances are that most stock’s are up, and vice versa. Of course, there are exceptions to the rule. For instance, a defensive stock or a precious metal may buck market weakness as investors race to put their money in safe havens. Conversely, in a strong market these same stocks may fall as investors prioritize alpha generation instead of capital preservation.
The Power of Raw Relative Strength
For investors and traders, one of the main jobs is to scan their watchlists daily to search for abnormalities and stocks that are not doing what they are “supposed” to do. Outside of risk management tactics such as position sizing, cutting losers, and running winners, no other thing has had a larger positive impact on my trading performance than raw relative strength. While many investors use the relative strength index (which is an oscillator), I prefer raw relative strength. Raw relative strength (RS) is a simple analysis where an investor searches for stocks that are outperforming the major indices such as the S&P 500 Index. Below are three things to consider when looking for relative strength:
· Down markets are the best time to look for RS: While many amateur investors lose interest in down markets, savvy investors understand that it is precisely the time to look for stocks exhibiting relative strength. Because most stocks fall in a down market, this environment reveals the strongest stocks and makes them easier to spot.
· Focus on Stocks in Uptrends: Investors should focus on looking for relative strength in stocks that are in uptrends. First, as the old Wall Street adage teaches, “The trend is your friend.” Second, stocks that bounce in downtrends often bounce simply due to short covering, not buying.
· Fundamentals Matter: By combining RS with fundamentals strong, catalyst heavy stocks, investors can dramatically increase their odds of success.
3 AI Stocks Exhibiting Relative Strength
· Applied Optoelectronics ((AAOI - Free Report) ): Monday, AAOI stood out like a soar thumb. While the Nasdaq fell more than 400 points, AAOI was up more than 5% in early trading. After years of losses, Wall Street analysts expect AAOI to become profitable in 2026 as demand for its data center segment surges.
Image Source: Zacks Investment Research
AAOI recently found support near its 50-day moving average and is attempting to break out of a high-tight flag pattern.
Image Source: TradingView
Meanwhile, group peers such as Lumentum ((LITE - Free Report) ) and Ciena ((CIEN - Free Report) ) are performing well, adding to the conviction in the photonics group.
· Sandisk ((SNDK - Free Report) ): Demand for SNDK’s high-capacity flash memory and storage solutions for AI is surging. In fact, Wall Street sees SNDK revenues growing at a triple-digit clip in 2026.
Image Source: Zacks Investment Research
Like AAOI, SNDK recently found buyers at the rising 50-day moving average, signaling that bulls are still in control.
Image Source: TradingView
· Nebius Group ((NBIS - Free Report) ): NBIS has landed several multi-billion-dollar deals and investments in the past few months as demand for its AI infrastructure surges. Despite the geopolitical volatility, NBIS shares were up the past three trading sessions.
Image Source: TradingView
Bottom Line
Most stocks are tethered to the S&P 500, but a select few have the power to break free. AI infrastructure plays like AAOI, SNDK, and NBIS are showing resilience while the broader market stumbles.
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RS: Spot Tomorrow's Leaders in Today's Volatility
Key Takeaways
Most Stocks Follow the Market’s Direction
Savvy investors understand that roughly 75% of a stock’s move is attributed to the general market’s direction. In other words, if the S&P 500 Index is up, chances are that most stock’s are up, and vice versa. Of course, there are exceptions to the rule. For instance, a defensive stock or a precious metal may buck market weakness as investors race to put their money in safe havens. Conversely, in a strong market these same stocks may fall as investors prioritize alpha generation instead of capital preservation.
The Power of Raw Relative Strength
For investors and traders, one of the main jobs is to scan their watchlists daily to search for abnormalities and stocks that are not doing what they are “supposed” to do. Outside of risk management tactics such as position sizing, cutting losers, and running winners, no other thing has had a larger positive impact on my trading performance than raw relative strength. While many investors use the relative strength index (which is an oscillator), I prefer raw relative strength. Raw relative strength (RS) is a simple analysis where an investor searches for stocks that are outperforming the major indices such as the S&P 500 Index. Below are three things to consider when looking for relative strength:
· Down markets are the best time to look for RS: While many amateur investors lose interest in down markets, savvy investors understand that it is precisely the time to look for stocks exhibiting relative strength. Because most stocks fall in a down market, this environment reveals the strongest stocks and makes them easier to spot.
· Focus on Stocks in Uptrends: Investors should focus on looking for relative strength in stocks that are in uptrends. First, as the old Wall Street adage teaches, “The trend is your friend.” Second, stocks that bounce in downtrends often bounce simply due to short covering, not buying.
· Fundamentals Matter: By combining RS with fundamentals strong, catalyst heavy stocks, investors can dramatically increase their odds of success.
3 AI Stocks Exhibiting Relative Strength
· Applied Optoelectronics ((AAOI - Free Report) ): Monday, AAOI stood out like a soar thumb. While the Nasdaq fell more than 400 points, AAOI was up more than 5% in early trading. After years of losses, Wall Street analysts expect AAOI to become profitable in 2026 as demand for its data center segment surges.
Image Source: Zacks Investment Research
AAOI recently found support near its 50-day moving average and is attempting to break out of a high-tight flag pattern.
Image Source: TradingView
Meanwhile, group peers such as Lumentum ((LITE - Free Report) ) and Ciena ((CIEN - Free Report) ) are performing well, adding to the conviction in the photonics group.
· Sandisk ((SNDK - Free Report) ): Demand for SNDK’s high-capacity flash memory and storage solutions for AI is surging. In fact, Wall Street sees SNDK revenues growing at a triple-digit clip in 2026.
Image Source: Zacks Investment Research
Like AAOI, SNDK recently found buyers at the rising 50-day moving average, signaling that bulls are still in control.
Image Source: TradingView
· Nebius Group ((NBIS - Free Report) ): NBIS has landed several multi-billion-dollar deals and investments in the past few months as demand for its AI infrastructure surges. Despite the geopolitical volatility, NBIS shares were up the past three trading sessions.
Image Source: TradingView
Bottom Line
Most stocks are tethered to the S&P 500, but a select few have the power to break free. AI infrastructure plays like AAOI, SNDK, and NBIS are showing resilience while the broader market stumbles.