Ratio MACD crossover as a portfolio weight filter

A relative-strength ratio of weekly closes

A relative-strength ratio is formed by dividing a fund or stock weekly close by a broad-index weekly close. A falling ratio marks underperformance. A rising ratio marks outperformance. The ratio is used to show relative performance rather than absolute price direction.

Editorial note: TradersWeek treats this archive workflow as a portfolio-construction filter. The repeatable relative-performance condition decides when a name, sector, or region earns weight versus cash, not when price alone looks tradable.

MACD and the trigger line on the ratio

Two moving averages of the ratio strip noise. Their difference is the MACD line, treated as a leading read on the ratio trend. A nine-period exponential average of that line is the trigger line for important relative-performance turns. Here MACD is applied to the relative-strength ratio, not to the price chart.

MACD applied to that ratio produces discrete signals when the MACD line crosses its nine-week exponential trigger. A cross above the trigger favors holding the security. A cross below it favors cash or a stronger alternative.

Price confirmation and tighter stock rules

If the broad market falls faster than the holding, the ratio can strengthen even as prices decline. A moving-average crossover on price can then be required as a second confirmation, so a rising relative-strength reading is not taken on its own.

For single stocks, which are treated as more volatile than funds, a long setup can require the weekly stock-to-index MACD to sit both above zero and above its trigger. Requiring the stock-ratio MACD to be in positive territory can delay entries while reducing false signals relative to trigger crosses alone.

Allocation breadth for equity, region, and sector weights

Across a watchlist, allocation breadth is the share of names on sell versus buy signals, and that share can set the equity-versus-cash weight. One illustrated case uses 35 sells among 50 names to justify cutting the equity sleeve to 30 percent.

The same breadth comparison between domestic and foreign names can shift capital toward the sleeve with more buy signals. An illustrated mix uses 70 percent of domestic names on sells and 65 percent of foreign names on buys.

The same ratio-MACD crossover applied to sector indices can flag which sectors are outperforming the broad index. It can be used to select constituents from the stronger sector.