Tracking
stocks with price ratio's
and watchlists
Overview:
What happens after
you have a list of stocks you want to trade? In
this newsletter we will highlight the application
of watchlists to cover a pool of potential stocks
as well as talk about simple moving averages and
growth averages. This "pool" of stocks
will be the stocks that comprise the DJIA (Excel
file of DJIA stocks (October 15th, 2005) and
samples from that list will be used to highlight
percent changes, simple moving averages and growth
averages.
In this newsletter,
there will be a lot of references towards percent
change over (5,20,50,100) day averages and simple
moving averages. The percent change over (5,20,50,100)
day average refers to the price difference from
the last reported close and the (5,20,50,100) day
average price. The following links are a good review:
-
For
a quick review on simple moving averages click
here
-
For a quick review on screening with price ratio's
click
here
The watchlist:
To start, the trader
will need some type of watchlist system to track
potential stocks. Depending on your service provider,
features may vary. In this case, we will be using
the watchlists provided by StockTools.
The main feature here
is the percent change. With a quick glance, we can
see which stocks are moving in what direction and
how fast.
Here is a watchlist of
the DJIA 30 stocks, I have sorted the list by growth
of the 50 day price average (I will explain in further
detail lower)
| While
GM is plummeting downwards, this tends to
skew the DJIA, for the most part we can see
that the majority of stocks within the DJIA
is trending upwards. For the 25 stocks of
30 that are trending upwards, the average
gain over 50 days of these 27 stocks was 5%. |
The watchlist is broken
down into several columns, the columns of interest
are the "percent change" column which
will tell us about the trend of the price and
whether we want to look at that stock or not.
First is the
% Close Change, this refers to the price
change since last close. In the case of GM, the
stock closed another 2.887% down from the previous
trading day.
The next item
of interest is the 5 day ave. This is the
percentage difference from last close compared
to the 5 day price average (sum of last 5 closes
divided by 5). In the case of GM, the most recent
close is 3% lower than the 5 day price average.
-
A
negative percentage tells us that the 5 day
SMA is above the price line and that the short
term price trend is down .
-
A positive percentage tell us that the 5 day
SMA is below the price line and that the
short term price trend is up.
-
The
lower/higher the percentage will give us an
idea about the strength of the move.
The 20 day
ave is the same in concept as the 5 day ave,
the only difference in that a 20 day price average
is used. In the case of GM, the most recent close
is 8% lower than the 20 day price average.
-
A
negative percentage tells us that the 20 day
SMA is above the price line and that the short/med
term price trend is down.
-
A
positive percentage tell us that the 20 day
SMA is below the price line and that the
short/med term price trend is up.
-
The
lower/higher the percentage will give us an
idea about the strength of the move.
The 50 day ave gives
us an idea of the medium to long term direction
of the trend, as with the other averages, the same
concepts applies.
To see an example of
how these percentages apply in terms of price charts,
lets look at GM. The watchlist provided us with
the following price movement information:
(click to enlarge)
When we
look at the chart for GM, we can see where the numbers
provided by the watchlists apply to a real chart.
A 17% drop over 50 days for a blue chip of this
magnitude is huge, a definite bear until GM can
return to profitability and regain some market share.
Having a
look at our top mover (INTC, Intel) we get a completely
different picture, something more positive.
For the trend follower,
a nice clean entry pattern emerges around November
20th, prior to the last move there was also a volume
increase which confirms that the trend has changed.
This volume increase also give us the indication
that this will have some upward momentum.
Screening for
your stocks based on growth:
If you want to
find all stocks with the same percentage growth
as INTC, use the following screen:
-
Fundamental
1: Price ratio 5 day - greater than or equal
to - 1.02
-
Fundamental 2: Price ratio 20 day - greater
than or equal to - 1.08
-
Fundamental 3: Price ratio 50 day - greater
than or equal to - 1.10
-
Fundamental 4: Volume ratio 20 day - greater
than or equal to - 1.05
You may also want
to include some close ranges to reduce this list
(ie: close between 10-50$) and some minimum volume.
You may also want to include a technical, however
this will reduce your list significantly, in the
INTC chart, include the following technicals:
-
Technical
1: 5-20 SMA cross within the last 30 days
-
Technical 2: 20-50 SMA cross within the last
15 days
Using these price
ratio's to track stocks is useful, applying them
to screening will give you the chart patterns you
are looking for.
If you want to
screen for stocks based on their percent
change of the 5,20,50 and 100 day price
average, read
this report
|
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