Relative Strength Alert: Can the Intercontinental Hotels (LON:IHG) share price reach new all-time highs?

Intercontinental Hotels (LON:IHG) recently reported its full-year results for 2018 - and the question now for investors is how its share price will respond.

Finding stocks that can break-out and move higher on news updates is a tactic used by some of the world’s most successful traders. But it’s not a black-box strategy…

Indeed, knowing the factors that drive relative strength in share prices can help you find profitable momentum trades, too. I’m going to use Intercontinental Hotels as an example of how this can work.

How has the Intercontinental Hotels (LON:IHG) share price performed?

Intercontinental Hotels is a conservative, large cap in the Hotels, Motels & Cruise Lines industry and it has a market cap of £8,401m.

Over the past year, the Intercontinental Hotels share price has risen by 7.81%, which sounds pretty good.

But it’s important to put this in context and look at the market trend. After all, in a rising market where prices are up across the board, that gain might not be as remarkable as it seems.

As it turns out, the FTSE All-Share index is up slightly over the past year, after a tough second half of 2018. So Intercontinental Hotels shares have a 1-year relative strength of 5.89%.

Read on to find out what the evidence shows may happen next...

Why relative strength really matters

Relative strength is a crucial tool in the armoury of technical traders and investors. It’s an instant measure of how a stock has performed in comparison with a benchmark.

And while there are no certainties about which way a stock will move next, research shows that price trends often persist.

Studies by Narasimhan Jegadeesh and Sheridan Titman, who are leading experts on momentum, show that stocks with the strongest price strength tend to keep up the pace for anywhere up to one year.

That said, for the fiscal year ended 31 December 2018, InterContinental Hotels Group PLC revenues increased 6% to $4.34B and net income before extraordinary items decreased 23% to $346M, while the group reduced its dividend per share from $1.06 to $0.78. Investors will no doubt be looking for a quick reversal in this trend if IHG's shares are to maintain their strong run.

What does this mean for potential investors?

Intercontinental Hotels is currently among the stocks with the strongest six-month and one-year relative price strength in the market. But momentum on its own is no guarantee of future returns. 

To get a better idea about whether this momentum will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with Intercontinental Hotels that you can find out about here.