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Some Much Needed Perspective on the Current Rally May 19, 2009

Posted by smarttradepro in Current Issues.
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“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.” Benjamin Graham

We’re going to take a break from our series on no-cost and low cost stock screeners to look at some interesting perspectives on the recent market price action.

It’s easy to get sucked into the hype that the media produces for us. And right now that hype is around the “record” move up that the stock market has made over the last couple of months. Let’s look at some math and then a chart that help to put the move into perspective.

First, the math. After an asset has dropped almost 60% in value, it’s easy to have a big percentage move up from that low price. For example, if a $10 stock drops to $4, and moves back up to $5.60, we could talk about the amazing 40% move up that it has had from its low, especially if we wanted to position things with a positive spin. Or sell newspapers or TV ad time. Or push forward an agenda.

Sure, such a move is impressive (and lucrative for those who bought near the bottom), but it really obscures what’s happening in the bigger picture. Let’s look a chart of the S&P 500 with some Fibonacci retracement lines drawn from the October 2007 highs to the March 2009 lows.

At the most basic level of analysis, we can see that this “historic” upward price move has not even come close to a 38.2% retracement (the first key level of price retracements in the Fibonacci world).

My favorite market analyst and good pal Christopher Castroviejo reminds me that even during the market crash of the late 1929 and subsequent Great Depression, there were no fewer than five rallies of 40% or greater. So this up move, while it breathes some hope into the market, is by no means definitive yet.

Would I love it if the economy righted itself and things just rocketed up from here? Sure! Economic downturns are tough on a broad range of folks, so pulling out of that would be really nice. But I’m also a realist; the economy has shown some signs of life, but I believe they are much smaller than one might expect given the truly massive and unprecedented amount of money that has been shoveled into circulation.

Next week we’ll look at this retracement move using a couple of other very interesting tools (some ratios, for example).

Until then…

Great Trading!

D. R.

Stock Screening – Prep for Technical Scans May 12, 2009

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I’ve been on a golfing quest over the last couple of weeks to buy a replacement set of irons. The Ping Zing 2s in my bag have been faithful servants. But my son Josh now plays on his high school golf team, and I’m hoping a little technology will help me keep up. The dad in this family has no plans to concede golfing supremacy to his 14 year old son without a fight. But I do recognize that I’m losing the battle; he’s getting bigger and stronger every day—and me? Not so much.

As you can imagine, my quest for the right set of irons has been a fairly extensive one. I’ve read online reviews (there aren’t that many good ones) and talked to good golfers that I know. Today, I even had an hour-plus fitting session with my golf coach. I know my best length, lie angle, shaft stiffness, etc., but even after hitting about 200 balls with 10 different clubs from four different manufacturers (or maybe because of that), I still don’t know which set I’ll choose.

I have found that selecting a new golf club or set of clubs is a VERY SUBJECTIVE endeavor. And perhaps more importantly, because of the different swings, levels of development and goals of golfers, what’s perfect for one player is not the right fit for another. Sounds a lot like matching trading styles, systems and strategies to individual traders…

Here is the truth: there is no one best system, strategy or style. Van’s main thesis in his must-read book, Trade Your Way…, is that no Holy Grail in trading system exists. There is no one great system out there, hidden and secret and only discovered by the choice few. Instead, the Holy Grail of trading is finding a strategy or style that has an edge in the markets and that fits you. And so it is with golf clubs. And with stock screeners.

Like a good trading strategy, a good screener has to meet certain functional requirements. Here are some must have items:

• An export of results in a standard format (spreadsheet protocol).
• A very broad base of stocks (preferably the whole universe of stocks, but inclusion of all stocks from one or multiple exchanges or broad indexes is at least useful and won’t get you disqualified).
• Quick scans (in the last few years, this really hasn’t been a problem)
• Sufficient scanning criteria (filters) to make it useful.

Here are some nice items to have:

• Easy to use interface.
• Ability to save scans.
• Low or no-cost options.
• Ability to sort scans in the online results without having to export.
• Customizable or programmable scans.

The lists could go on, but you get the point. The importance of these individual items will vary from user to user.

So sadly, there is no “one best screener” for everyone. But next week we will start to dig into the details of the online low and no-cost screeners that offer some sort of technical scanning ability.

Thanks to everyone who wrote in to give tell me which technical stock screeners you like. Some good ideas and points were made by almost everyone. Please send any suggestions/thoughts/reviews of your own to drbarton “at” iitm.com. Until next week…

Great Trading,
D. R.

More Top Notch Internet Resources Part VI Stock Screening – Google Finance Falters May 5, 2009

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Last week we ended by talking about Google Finance’s use of Web 2.0 tools to make an addictive little screener. And it is truly fun to play with. But alas, when the playing is done and it’s time to get down to some real work, Google Finance’s stock screener really has little to offer.

First the good stuff about the Google screener. Compared to almost every other screener, it’s easy to find. A little thing, I know, but it’s frustrating trying to go through the multiple layers of web pages to get to some of the better no-cost screeners. At the top of the Google Finance homepage, right next to the ubiquitous Google search box, is a single hyperlink, the stock screener (in typical Google minimalist style).

Once you get to the screener you’ll find four default screening criteria with boxes for minimum and maximum values. The truly unique part is the slider that’s between the min/max boxes. Between the min and max sliders is a little histogram that represents how many stocks are at each increment of the slider. Cool. For most criteria, this looks like a normal distribution, with some skew to one side or the other. What makes this really fun is that if you move one of the min or max sliders to reduce the universe of stocks, you get instantaneous feedback on how many stocks satisfy the scan, plus a sortable list of stocks that meet all of the criteria. And when I say instantaneous, I mean less than a second.

As Google has set this up, it’s a very visual process, but I’ll try to describe one example for you. With all of the criteria set as wide as possible, Google shows 2,950 stocks. Move the ‘dividend yield’ minimum value slider to the right from 0% to 5% and the universe is reduced to 512 instantly sortable stocks. You can do this with 61 different criteria that Google provides, if you so choose.

But the good news pretty much ends there. The minus side of the ledger is unfortunately well populated for the Google Finance screener. And there are some deal killers.

First and foremost, there’s no way to export the results of your scans to a spreadsheet or trading platform watch list. And if you devise a scan that you really like or need and want to run it later, there’s no way to save a set of screening criteria. In addition, the universe of screening criteria is fairly limited.

Here’s the bottom line. If you’re just wondering how many stocks have a Market Cap over $1 billion and a dividend yield between 2% and 6%, and you want a lightening quick answer, Google can get you there with a sortable list. But you won’t be able to save or export the scan, making the utility of this Google app marginal at best.

In the end, the Google Finance stock screener is a bit like a Slinky. It’s fun to play with and can occupy you for minutes on end, but when all is said and done, you can’t turn your time and effort spent into anything really useful.

Next week, we’ll start to look at some screeners that scan for technical criteria. So please send any suggestions/thoughts/reviews of your own to drbarton “at” iitm.com. Until then…

Great Trading,

More Top Notch Internet Resources Part V Stock Screening: Mediocrity And Good Stuff May 1, 2009

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Welcome back to D. R.’s maniacal search for useful stock screeners. You can help feed my obsession by sending comments/suggestions/reviews of your favorite screeners to drbarton “at” iitm.com.

It’s 3 a.m. EDT, and I’ve just spent three and half hours digging through dozens of online stock screeners. Apparently, every webmaster on Planet Earth decided that screeners are the “Pet Rocks” of the new millennium. Unfortunately, most of them have about as much utility as the 1970s fad.

Indeed, some big name sites have stock screeners that are very simplistic and lack any depth or edge. Most of them are just “copy cats” that allow one to screen for market cap, EPS, and a few criteria found on balance sheets.

Below, I’ll tell you about one screener that was particularly fun to play with because of its innovative user interface. But I think the most help that I can give you this week is a list of lackluster screeners that you need not bother consulting. I’ll also tell you about a few with useful features that give them a reason to exist. Let’s start with the “ho-hum” list.

This group of screeners has very little to recommend them versus other more powerful and well-rounded contenders. Surprisingly, the CNBC screener is quite pedestrian. The same can be said for the screeners found at USA Today, AOL and Gainskeeper. Regrettably, the screens at well-known financial sites like MarketWatch, and TheStreet.com can be passed over as well. And while the venerable Wall Street Journal (wsj.com) lists a healthy 70 criteria for screening, the user interface and lack of export capability make it a forgettable tool. But my compulsive evening/morning of searching did turn up a few interesting tidbits.

While none of the fundamental screens I looked at approached the standard set by MSN.com and Yahoo! Finance, there were some notable features out there. Morningstar’s free screener allows you to filter according to their famous style boxes and more impressively by applying their A-F grading system for the categories of growth, profitability and financial health. A decade ago, this encyclopedic listing would have been available only by subscribing to a print version of Morningstar research or by trundling down to your local library for an evening of thumbing through volume after volume.

I ran a screen looking for only those stocks rated “A” in all three categories. And after the stock market and economic carnage of the last six+ months, only four stocks met those criteria! I’ll list those below…

Zacks.com has a very comprehensive set of fundamental screening criteria that is on par with the lists offered at MSN and Yahoo! Finance. And the new beta version is java based and fairly user friendly, if a bit clumsier than Yahoo!’s. Zack’s screener includes their rating system as well, but only as a paid option ($199 per year).

Another screener that has a good compliment of screening criteria is found at Google Finance. And as we’ve come to expect, the good folks at Google add a twist—the user interface is awesome. It’s addictive, actually. It is one of the simplest, fastest and most elegant uses of Web2.0 that I’ve seen. It raises a middling tool up to a much higher level. More on that next week. Until then…

Great Trading,