By plotting the resulting series from index/stock ratio, we can have a good idea of the relative strength of a stock compared to its index.
This approach is very useful to discover stocks that will underperform or overperform the index, so we can focus on long position on only those stocks showing a declining RS, and the opposite for short position.
RS is plotted contrary to the stock data, it means a declining ratio series shows increase of strength for stock while rising serie shows increase of weakness.
Of course we can accomplish the same analysis approach on this serie as from any stock data serie.
Let's apply cycle analysis on FTSEMIB / Atlantia on intraday 12 min time frame, 50 points ahead forecast.
The resulting predict call for an immediate uptrend (stock decline) up to the ratio top, 40 bars ahead.
Channel show the actual trend with support and resistance levels.
The first out of sample bar marks a little lower bottom, followed by an immediated uptrend
Exactly as predicted, ratio rise for 40 bars, reaching the expected top time target
Ratio plummet sharply after reaching the predicted top, finding support on 75% internal Channel retracement line.
Exhaustion wave adds reliability to the cycle analysis by plotting a red and a blue signal in line with predicted top and 1 bar before ratio hit internal price retracement.