Constructing relative-strength KST from weighted rate-of-change

Four series in one reading

KST is the weighted sum of four separately smoothed rate-of-change series, used as a multi-cycle oscillator. Each term is a close-to-close percentage change over a chosen lookback, recentered at zero after multiplying by 100 and subtracting 100. Combining the four smoothed series into one weighted sum lets several cycle lengths appear in a single reading.

How the oscillator is computed

Computation has three steps. Form each rate-of-change as the current close divided by the close n periods earlier, multiply by 100, and subtract 100. Smooth each series with a simple or exponential moving average. Then multiply the smoothed series by weights and sum them.

An exponential moving average used in that smoothing is updated as the prior average plus alpha times the difference between the new observation and the prior average, with alpha equal to 2 divided by n plus 1. Suggested parameter tables specify daily, weekly, and monthly lookbacks, moving-average lengths, and weights of 1, 2, 3, and 4 for the four rate-of-change terms.

The reversal line and the three-horizon layout

A reversal condition is defined as the finished oscillator crossing above or below a moving average applied to that oscillator. The moving average is used both as a smoother on each rate-of-change component and as the crossover line on the finished KST.

Changing the rate-of-change spans and their weights produces short-, intermediate-, and long-term versions that can be stacked as a three-horizon layout. That stacked reading is the market-cycle-model: short-, intermediate-, and long-term oscillator prints used to place a move inside a longer trend. In that layout the long-term reading is assigned to primary swings lasting one to three years, while the shorter two horizons are reserved for timing.

Relative strength as a price-to-basket ratio

Relative strength is constructed as an item price divided by a basket or index. A rising line means outperformance versus the basket, not necessarily a rising absolute price. This ratio is distinct from the relative strength index.

The same build on a relative-strength series

The same three-horizon construction can be applied to a relative-strength series. A long-horizon setup is described as the long-term relative oscillator below zero and crossing above its moving average, while the shorter horizons are not overextended and the ratio line itself confirms by an exponential moving-average crossover or a trendline break.

Opposite group readings and rotation

Comparing long-term relative-strength oscillators of interest-sensitive and inflation-sensitive groups is presented as a way to locate the stage of a rotation cycle, because those two group readings tend to move in opposite directions. That contrast is the group-rotation reading: a shift of leadership among industry groups across a cycle, visible when the long-horizon relative oscillators for those contrasting groups move in opposite directions.