The Concepts Behind
the Numbers.

The core idea

When you look at a stock's price chart and see it is up 12% over the past three months, that tells you only half the story. The other half is: what did the broad market do during that same period?

If the index rose 18%, your stock lagged the market by 6% — even though it went up in absolute terms. Capital that was invested in the index would have performed better. A stock that consistently loses ground relative to its benchmark is unlikely to become a sustained market leader.

Relative Strength (RS) formalises this comparison. It measures a stock's price return against its benchmark over a defined time period — and expresses the result as a single, comparable number.

Why it matters for investors

Decades of market research — and the track records of some of the most successful growth investors in history — consistently show the same pattern: the stocks that produce the largest price gains are almost always the strongest relative performers before the big move begins.

Put differently: market leaders tend to show their leadership early. When a stock is consistently outperforming the index — even moderately, even before the full trend is clear — it is already differentiating itself from thousands of alternatives. That early outperformance is the first observable indication of potential leadership.

This is why a stock that is up 8% while the market is up 15% is treated as a weaker setup than a stock that is flat while the market is flat. In both cases, the price barely moved — but the RS readings are very different. The flat stock held its ground; the "up 8%" stock was falling behind.

RS over multiple timeframes

Markets move in waves of different lengths. A stock can look strong over 3 months and weak over 12 months — or vice versa. That is why the platform measures RS across multiple timeframes simultaneously: short-term (weeks), medium-term (months), and longer-term (quarters).

The most significant RS reading occurs when a stock shows sustained outperformance across all timeframes at once. That alignment — short, medium, and long-term RS all positive — reflects deeply embedded institutional participation, not a brief speculative burst.

What momentum means

In physics, momentum describes an object that is already moving and tends to keep moving. In markets, the concept works the same way: a stock that has been persistently outperforming its peers tends to continue outperforming over the next 3 to 12 months — unless something breaks the pattern.

This effect is well-documented across global markets going back decades. It is one of the most studied and replicated findings in the field of quantitative investing. It is not a guarantee — markets do not guarantee anything — but it is a persistent edge that consistently appears in the data.

The platform's momentum scoring system attempts to capture this effect not from a single indicator, but from the agreement of multiple independent indicators. When RS, RSI, trend direction, and moving average alignment all point the same way simultaneously, the momentum reading is far more reliable than any single metric alone.

What the classification tiers mean

The platform assigns each stock to one of six tiers based on its combined analytical profile. Here is how to read each tier:

Prime is the highest classification. It means the stock's analytical profile shows the broadest alignment — outperforming on multiple RS timeframes, with RSI, Supertrend, and trend direction all confirmed simultaneously. It is relatively rare. Not every market will have Prime stocks every day.

Confirmed means strong, broad alignment — but not every factor at its peak. A consistent RS leader with solid momentum. Most established RS leaders are in this classification.

RS Leader means positive relative strength on the primary timeframe. The stock is outperforming the market, but confirmation factors have not fully aligned yet. A developing RS reading.

Watch means conditions are improving but alignment is not yet confirmed. Worth monitoring for further confirmation.

Neutral / RS Breakdown — either mixed readings or clear underperformance. Drops into this tier indicate that a stock's relative leadership has faded.

The most important thing to understand

These classifications are analytical tools only — they do not constitute a recommendation to buy, sell, or hold any security. They describe where a stock sits in the relative strength ranking at this moment in time, based on its recent price behaviour relative to the market. These are informational outputs; all investment decisions remain entirely with the individual investor, who should conduct their own research and consult a qualified financial professional.

Why the index can mislead you

Most major stock market indices are weighted by market capitalisation — meaning the largest companies have the most influence on where the index goes. In a large-cap dominated index, a rally driven by 5 or 10 enormous companies can push the headline number up even while the majority of stocks in the index are flat or declining.

This is a well-known phenomenon called "narrow market leadership." It happens regularly, particularly late in bull market cycles when money increasingly concentrates into the perceived safety of a handful of mega-cap stocks, while smaller and mid-cap names quietly weaken beneath the surface.

If you are watching only the index, you may believe the market is healthy when it is actually fragile. Market breadth is the X-ray that looks beneath the surface.

What breadth actually measures

Breadth indicators count participation. The most common measures are:

Advance/Decline ratio — how many stocks advanced versus how many declined on a given day. A ratio of 3:1 means three stocks went up for every one that went down — a healthy, broad rally. A ratio of 1:3 means the opposite — the market looks weaker than the index suggests.

% above key moving averages — what percentage of all stocks are currently trading above their 20-day, 50-day, 100-day, and 200-day moving averages. When 80% of stocks are above their 50-day moving average, the trend is deeply embedded across the full market. When that number drops to 30%, the trend is concentrated and vulnerable.

The platform tracks both of these across multiple index levels within each market — the broad universe, the large-cap index, and in some markets the mid-cap and small-cap universe separately.

How to use breadth in practice

Breadth context helps you calibrate how aggressively to look for new setups. When breadth is strong — most stocks in uptrends, broad advance/decline ratios — the environment is supportive of momentum strategies. When breadth deteriorates — fewer and fewer stocks holding above key moving averages — the environment is sending an early warning, often before the index shows it.

This is not a timing tool by itself. Markets can stay narrowly led for extended periods before reverting. But breadth is one of the most reliable early warning systems available to an investor who wants to understand what is truly happening beneath the index level.

Why sectors behave differently

Each sector of the economy is sensitive to a different set of conditions. Technology companies are affected by interest rates and growth expectations. Energy companies are affected by commodity prices and geopolitics. Consumer Staples are relatively immune to economic cycles — people still buy groceries in recessions. Financials are sensitive to the yield curve and credit conditions.

Because of these different sensitivities, sectors rarely move together. When one sector is outperforming, another is typically underperforming. This rotation of capital between sectors is one of the most persistent and observable patterns in financial markets.

The rotation cycle

Sector rotation tends to follow a recognisable pattern across economic cycles — though the timing varies considerably and no cycle is identical. Early economic recovery, for example, tends to favour Consumer Discretionary and Financials. Late cycle often sees Energy and Materials lead. Defensive sectors like Utilities and Consumer Staples tend to hold up better during slowdowns.

You do not need to predict where you are in the economic cycle to benefit from rotation analysis. What you need is a way to observe which sectors are currently receiving capital flows — not which sectors "should" be leading based on theory. Markets often lead the economy by months, pricing in future conditions long before they are visible in economic data.

This is where relative strength applied at the sector level becomes useful. A sector that is consistently outperforming the broad market — regardless of the macro narrative — is a sector where institutional capital appears to be flowing. RS data reflects observable price behaviour across the market, not predictions or forecasts.

Leading vs lagging sectors

A leading sector is one that is outperforming the broad market index on a relative basis and showing improving RS momentum. Capital is flowing in. Stocks within a leading sector tend to have macro tailwinds supporting their individual momentum.

A lagging sector is the opposite — underperforming the index, with deteriorating RS. Capital is flowing out. Even strong individual stocks within a lagging sector are fighting an uphill battle against this sector-level headwind.

The implication for stock selection: everything else equal, a stock in a leading sector is in a more favourable environment for a sustained move than an identical-looking stock in a lagging sector. The sector context does not guarantee anything — but it meaningfully changes the probability distribution.

The pyramid of confirmation

Think of the market as a pyramid. At the top is the broad market — the overall trend and health of the index. Below that are the sectors. Below the sectors are industries. At the base are individual stocks.

The top-down approach works from the apex downward: you only move to the next level when the level above it confirms a healthy environment. If the market is in a sustained downtrend with deteriorating breadth, you do not spend your time hunting for individual stock setups, because even good stocks tend to fail in bad markets. The macro environment is a strong headwind that even the strongest stocks struggle to overcome.

This is what separates top-down investors from pure stock pickers. A stock picker might find a brilliant-looking chart — great RS, strong fundamentals, ideal pattern — and commit capital, only to have the market decline drag the stock down regardless. A top-down investor only takes that setup to the next stage of analysis if the broader market environment supports it.

The three questions

Question 1: Is the market healthy? Are most stocks in uptrends? Is breadth expanding? Is the broad index above its key moving averages? A positive answer here is the first green light.

Question 2: Which sectors are leading? Are there clearly identifiable sectors outperforming the broad market on a relative basis? Is the RS trend in those sectors expanding or contracting? A leading sector provides a macro tailwind for every stock within it.

Question 3: Which stocks are leading their sector? Within a leading sector, which individual stocks have the strongest RS, the cleanest trend, and the most aligned momentum profile? These are the candidates for the next level of analysis — chart structure, fundamentals, setup quality.

The goal of this framework is not to find any stock opportunity. It is to concentrate attention only on the highest-quality setups that have the full alignment of market, sector, and stock working in their favour simultaneously.

How TechnoFunda applies this

Every tab on the platform exists within this framework. The Market tab shows you the first question — breadth, snapshot, macro health. The Sectors tab shows you the second question — which sectors are leading, which are weakening. The Opportunities tab answers the third — stocks where sector RS and individual stock RS are both confirmed and aligned. The All Stocks table lets you filter down by every factor simultaneously.

This is why the platform covers 40 global markets with the same methodology: the top-down framework works at any scale. The same logic that filters sectors within India also filters countries within the global picture. Capital rotates between countries just as it rotates between sectors.

RS Percentile — the core calculation

Every stock in the universe is ranked against every other stock in the same market. The rank is based on that stock's price return relative to the benchmark index over a defined lookback window. A stock in the 92nd percentile has outperformed 92% of all other stocks in that market over that period — it is in the top 8%.

This percentile approach has one important property: it is self-normalising. In a strong bull market, almost every stock rises — but the RS percentile still separates the strongest 20% from the weakest 20%, regardless of absolute returns. This means the ranking remains meaningful even when the whole market is trending.

The percentile is computed separately over multiple windows — a short-term window, a medium-term window, and a longer-term window. Each window captures a different aspect of relative performance.

Why multiple lookback windows matter

A single lookback period is unreliable in isolation. A stock can spike sharply in one week on news and look extremely strong on a short window, while still being a long-term underperformer. Conversely, a long-term RS leader can experience a brief pullback that looks bad on a short window.

The short-term window captures recent price momentum and responsiveness. It is the most volatile and sensitive to noise. It is not reliable by itself but adds value when it aligns with longer-term readings.

The medium-term window is the workhorse period. It is long enough to filter out short-term noise and short enough to reflect current conditions rather than history. This is the primary signal for most classifications on the platform.

The longer-term window captures deeply embedded trends. Stocks that have maintained strong relative performance over the long run have typically done so through multiple market conditions — earnings cycles, volatility events, macro shifts. This persistence is the hallmark of genuine institutional participation.

When all three windows agree — short, medium, and long-term RS all positive — the signal is far more reliable than any single window alone. This multi-window alignment is what the platform specifically identifies.

What separates the analytical tiers

Classifications on the platform are not arbitrary thresholds on a single number. Each tier describes a different degree of factor alignment across multiple independent indicators. They are descriptive analytical labels — not investment recommendations of any kind.

Prime is the broadest alignment tier — positive RS across multiple timeframes simultaneously, with RSI, Supertrend signals, and moving average structure all confirming the same direction. It is the rarest classification because most of these conditions are met individually by many stocks, but having all of them aligned at once is far less common. Reading: the analytical profile shows the highest degree of multi-factor confirmation available in the framework.

Confirmed describes strong, broad alignment with most but not all factors at their highest reading. Reading: the analytical profile is consistent and multi-factor confirmed, though not every factor is at its peak level simultaneously.

RS Leader indicates that the primary relative strength reading is positive, but the full confirmation layer has not assembled across all factors. Reading: the stock is analytically outperforming the market on the primary measurement window. A developing profile.

Watch indicates conditions are moving toward greater alignment but have not yet reached the confirmation threshold. Reading: the analytical profile is improving. Not a signal to act — a prompt to monitor for further confirmation.

Avoid describes a clearly negative relative strength profile — the stock is underperforming the market on the primary timeframe, with weakness often confirmed across other factors. Reading: the analytical profile does not meet the framework's conditions for positive classification.

How sector strength is derived

Sector strength is not simply the average return of all stocks in a sector. It combines relative strength readings at the sector level and the stock level — against the broad market and against sector peers — together with momentum and trend data across the group.

Sectors where more member stocks are individually in positive analytical alignment will naturally rank higher than sectors where individual stock profiles are mixed or weak. The exact scoring is proprietary.

This is why a sector can appear to be "leading" even when its absolute return looks modest: what matters is how it is performing relative to the market, not relative to its own history.