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7 Relative Strength Stocks for 2012

Stocks in this article: CIEBAHGCIELNMBICTASRATE

BALTIMORE ( Stockpickr) -- As we tick closer to the end of the trading year, traders are still wondering whether stocks will be able to get their heads above water before the calendar switches over to 2012.

Frankly, it's been tough going for investors in 2011. Everywhere you turn, there's a story about a legendary fund manager getting hammered or a rationale for why stocks are getting smacked lower. Year-to-date, the S&P 500 index is essentially flat, but along the way it's squeezed even bigger profits from both longs and shorts - and as we approach year-end, things aren't looking terribly auspicious for investors either.

But that's not exactly the whole story...

On an individual basis, some stocks have performed exceptionally well in 2011. While high correlations are still a problem for investors, a stock that has a high correlation with "the market" can still dramatically outperform it. The question is how you find those stocks beforehand; the answer is relative strength.

Related: 5 Big Surprise Stock Losers of 2011

With year-end just a month away, relative strength is one of the best tools we have to identify stocks that are likely to beat the market in 2012. So, how does it work?

Put simply, relative strength is a ratio of a stock's price to a broad market index. The ratio itself isn't important -- instead, it's the trend of the ratio over time that's investible. According to academic research, relative strength is a statistically viable strategy over a one-to-10 month time horizon; that's the timeframe we're focusing on today. To find the seven names that made this list, I used a quantitative screen to rank the top S&P 500 names with relative strength over several timeframes, then weeded out the more attractive names using technical analysis.

The result is a set of relative strength trades that should outperform as we enter 2012.

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