| Second Opinion® Weekly - Quick Start | Technical Terms Explained |
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In Quick Start, our goals are to:
Let's get started ! What is Second Opinion Weekly? Second Opinion Weekly is a quantitative model designed to help you manage market risk. Whereas analyst reports are intended to manage fundamental risk by supplying information on "fundamentals" such as sales, earnings, and industry outlooks, quantitative or "technical" analysis measures market risk--how investors and traders are actually trading. (Think about it: If you like a company and no one else does, it's unlikely that you'll make any money. If you like a company and others do as well, it's more likely that you'll make money. Second Opinion Weekly tells you what the others are thinking by measuring what they are doing with their money.) Second Opinion Weekly generates Buy-Hold-Sell opinions on nearly 5,000 stocks representing over 90% of the daily volume on the NYSE, AMEX and NASDAQ markets. (Additional stocks are added each month. See the FAQs for the procedure.) Second Opinion Weekly will enable you to position stocks in the early stages of up moves and get out of stocks prior to a plunge. Let's first take a look at what is contained in the six sections of each Second Opinion Weekly. Afterwards, we'll look at what to key on when making your own individual Buy-Hold-Sell decisions, including the four warning signs that Second Opinion Weekly flashes for every stock.
Stops are area of significant recent support or resistance. The break below a Sell Stop or above a Buy Stop is an extremely important change in the technical condition of a stock and typically represents the beginning of the end of a previous trend. Stops are typically far away from the current price when a stock is clearly in an established trend. The stop will tighten closer to the current price when the stock's trend begins to change. For example, in early 1998, the sell stop for RAIN was near 23. The stock was experiencing significant selling. A few weeks later, the stock fell to 11 as the reason for the selling came out: disappointing earnings. Conversely, at the same time the buy stop on DEC was near 40. The stock was experiencing significant buying. At 45, the company announced it had received a $56 take-over offer. The breaking of a stop is one of the four warning signs that a high probability exists that a stock's trend is changing. However, since it is one of four signs used to confirm a change in a stock's technical outlook, the opinion will not change even though the stop is broken. Advanced technicians will want to note support (a price at which the stock is expected to hold), resistance ( a price at which the stock has difficulty breaking through). Support and Resistance are calculated using 3 seperate trend lines( for each) and extending the trend line to the current date. The closest trend line is used as the support or resistance number. As the stock moves through the trend line the next trend is then used. When all the trend lines have been violated, the value goes to N/A(Not Available). The Moving Average Box provides you with details on four of the most popular moving averages. Included in the data is the current value of the moving average, the percentage of the current price represented by the moving average value, and the slope of the curve. This box can be very usefull in identifing stocks which are very extended up or down.
Advanced technicians will want to note a stock's trading volume vs. it's trailing one month average daily volume and monthly percentage change.
Day traders or "scalpers", those with an extremely short-term perspective, will want to note the stochastics (Slow %K and Fast %K). These give one day and three day overbought/oversold signals. Advanced technicians will want to note the Bollinger Band and Wilder's RSI readings and MACDs.
How do I use Second Opinion Weekly? There are two key elements to Second Opinion Weekly. The first is the OPINION which we have already covered. The second is the SCORE. Together they produce the Recommendation which is the best way to manage your stock investments. The Score reduces the level
of market risk to a single number for interpretation purposes. Scores range
from 0 to -4 for Longs, attempting to show levels of technical deterioration
and guiding you to an exit point. Scores range form 0 to +4 for Avoids,
attempting to show levels of improvement and guiding you to an entry point.
The table below summarizes the Score System.
Our relationships with institutions and our experience over the years have provided some reliable, tested criteria in making Buy-Hold-Sell decisions with a high degree of confidence. A "Long" that flashes one or more of the following four warning signs is in trouble. At this point, you should be monitoring the stock closely and considering defensive strategies:
For advanced technicians and short sellers, the same warning signs apply to Avoids:
Can Market Edge improve my investing results? The following back tested results used the Score to trade the stocks that are incorporated in the S&P 100 Index (OEX) over a 5 year period from 8/6/90 to 5/16/95. Four tests were performed for the Long side. Long positions were opened when a stock was Upgraded to Long by SECOND OPINION. Positions were closed when the Score reached -1, -2, -3, and -4. The results are listed below. ANNUALIZED % TIME STRATEGY % RETURN INVESTED Buy on Upgrade to Long 9.5% 38.5% Sell when Score is -1 Buy on Upgrade to Long 15.2% 46.2% Sell when Score is -2 Buy on Upgrade to Long 23.0% 53.9% Sell when Score is -3 Buy on Upgrade to Long 25.1% 56.5% Sell when Score is -4 S&P 100 9.6% 100.0%The annualized percent return is the average annual return computed from the total profits and total capital required for the life of the test. The average annualized % return is calculated by taking the dollar amount of the largest transaction less any profits from prior transactions divided by the number of years in the test for each stock in the test. The percent time invested represents the time spent in open positions. Notice that the results are much better if the position is held until the Score reaches -3 or -4. Not only does the annualized percent return increase, but the time invested increases also. When the Score reaches the lower values a greater degree of deterioration occurs before the position is exited. Of particular importance in this analysis is the % time invested. For example, opening positions when the Opinion was Upgraded to Long and closing when the Score reached -3 generated a 23.0% average annualized return while being invested only 53.9% of the time. Being fully invested in the S&P 100 Index during the same period would have generated a 9.6% annualized return. A more aggressive approach when initiating positions can be accomplished by entering into positions using the Early Entry Long in the Personal Stock Watch module. Create a list of stocks that you want to monitor and then access Early Entry Long to access those stocks which meet the Early Entry criteria. The results of trading the same list of stocks over the same time period follows. ANNUALIZED % TIME STRATEGY % RETURN INVESTED Buy on Early Entry Long 13.4% 46.7% Sell when Score is -1 Buy on Early Entry Long 23.0% 55.7% Sell when Score is -2 Buy on Early Entry Long 31.5% 64.3% Sell when Score is -3 Buy on Early Entry Long 33.4% 66.5% Sell when Score is -4Once again you will notice that the lower the Score gets before exiting the position, the better the results. As you can see, during this test Second Opinion Daily outperformed the S&P 100 by over 2.5 to 1. Of course, past results are no guarantee of future performance. Summary First and foremost, it pays to remember that nothing works ALL of the time and there is no such thing as a magic "Black Box". If you want Second Opinion Weekly to fulfill this fantasy, you will be disappointed. However, technical research can help you manage market risk, as opposed to fundamental risk, by measuring what people are thinking and by identifying what they are doing. This is the basis for the old adage "The Trend is your Friend". Adherence to the technical conditions enables you to position yourself in stocks in the early stages of up moves and alerts you to get out of stocks prior to significant declines. Market Edge is a leader in providing technical research in a form the individual trader or investor can easily use and understand. Market Edge identifies conditions that have a high probability of predicting bullish or bearish price movement. By focusing on the few items highlighted in our discussion of the six components of the Second Opinion report and familiarizing yourself with the Scores and four warning signs, YOU provide yourself with powerful and reliable input that assists in making those difficult Buy-Hold-Sell decisions. | |||||||||||||||||||||||||||||||||
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