RS Line Divergence Can Offer Timely Sell Signal.(A)(INVESTOR'S CORNER)

Byline: CRAIG SHAW

When a stock breaks out, you want everything moving in the right direction. The stock's price and volume should surge.

The stock's Relative Strength line should also head into high ground. If it isn't, you've spotted a danger sign that might presage a breakdown, a time to sell shares.

The RS line compares a stock's price action to the S&P 500. A rising line shows the stock is outperforming the benchmark index. A downward slope means the stock's lagging the broad market. IBD's daily and weekly charts on investors.com feature the RS line below the price range bars.

As a stock builds the right side of a base, you want the RS line to climb too. When the stock surges past its pivot point, the RS line should also breach high ground. Even better, the RS line may hit new high ground before the breakout. The stock might have exceptional strength.

An RS line that lags a breakout might mean the stock lacks the power to build on its gains. It can signal institutions are selling.

The RS line might break its uptrend as the stock builds a fresh base. Ideally, the slope will be shallow and the line should recover as the stock rounds out its formation. A ...