Using the Sentiment Stockscore to Make Good Stock Picks
Stockscores.com Perspectives for the week ending June 29, 2012
In this week's issue:
Strong stocks in strong sectors have a better potential to go up than strong stocks in weak sectors. A large portion of a stock's performance is based on the movement of the industry group that it is part of. You can use the Stockscores indicators to help understand what industries investors are optimistic on and which they do not favor.
First, a quick lesson on how the Stockscores indicators are calculated. Every stock, index or ETF that we cover is given 50 points to start. Points are added for chart characteristics that are good and deducted for negatives. For example, breaks through price resistance indicates buyers are stronger than sellers and so the algorithm awards points when this happens. A downward sloping moving average is a sign that the sellers are in control so points are deducted when this happens. I created the algorithm with about 15 different metrics that can be measured from market activity, each awarding or deducting points based on whether that metric was a positive or negative signal of future price direction.
This algorithm defines the Signal Stockscore which tends to bounce around quite a bit. To smooth out the line, the system then calculates a 7 day exponential moving average of the Signal Stockscore to produce the Sentiment Stockscore. This is the important number to watch.
A Sentiment Stockscore above 60 indicates that investors are generally optimistic about the stock, index or ETF. One below 40 indicates the market is pessimistic. The sweet spot is to find Sentiment Stockscore lines, which can be seen on any Stockscores.com chart, sloping upward and crossing through 60. You should then look to the price chart to see a confirming price pattern where stock price is moving up through resistance from low price volatility.
I don't recommend buying a stock just because it's Sentiment Stockscore is 60 or higher but I do find that strong, market beating stocks, tend to have solid Sentiment Stockscores early in their trend. The Stockscores indicators are a great way to provide a quick reference for the strength or weakness of a stock.
You can check the Stockscore for most North American stocks, ETFs and indexes by entering the symbol in the upper right hand corner of Stockscores.com. The Stockscore algorithm requires 200 days of data to calculate the Stockscores indicators so newly listed companies will only display a chart and not the indicators.
For most liquid stocks, we also display the stock's sector. When you enter the company symbol on Stockscores.com, you will see the stocks Quick Report which displays the chart and a number of information tabs. One of these tabs is labeled Sector and, for most larger companies, you can see the chart and Stockscore of the company's sector as well. This allows you to seek that second confirmation that a stock is worth considering.
For example, one of the worst performing high profile stocks over the last year has been Research In Motion (T.RIM, RIMM). RIM has not had a Sentiment Stockscore of 60 or better since early 2011. The simple rule of only considering stocks with a Sentiment Stockscore of 60 or higher has kept you out of RIM while it has performed so poorly.
Ariad Pharmaceuticals has been a consistent winner in 2012 and so far, it's Sentiment Stockscore has not dipped below 60. Plus, an inspection of its Sector Chart, US Pharmaceuticals, has been above 60 for most of the year as well.
You can review the charts of any North American stock and see the Sentiment Stockscore for free. Just enter the symbol in the box at the upper right of the site. Canadian symbols require a prefix, T. for the TSX and V. for the Venture. Members can use the Sector Watch to see what areas of the market are strong and the Market Scan to screen the market for stocks that have good Sentiment Stockscores or perhaps those that are just crossing above 60 today.
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This week, I created a very simple Market Scan, looking for the following:
Sentiment Moves above 60
Number of Trades > 1000
This seeks out stocks that had a Sentiment Stockscore below 60 yesterday and at 60 or higher today, provided they have traded at least 1000 times today. That Market Scan found 32 stocks. I inspected each chart, looking to see if the Sentiment Stockscore has been below 60 for some time and is now just crossing above and to make sure that the stock is not already well in to an upward trend but is just now starting to show optimism. Finally, I looked to see if the parent sector for the stocks I liked was also showing optimism.
Here are three stocks that I think are worth considering:Back To Top
1. BCRX
BCRX started to show strength early in June and worked through some short term resistance this past week, taking its Sentiment Stockscore up to 60 on Friday. The Pharmaceuticals sector is very strong with a Sentiment Stockscore of 77.
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2. AMPE
AMPE broke out through a cup and handle pattern on Friday with heavy volume, taking its Sentiment Stockscore up to 60 after being below since 2011. This company is also in the Pharmaceuticals sector
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3. GT
GT has been trending lower for most of 2012 but recently broke its downward trend and is starting to move up. The US Tires sector is doing the same with a Sentiment Stockscore of 64. Good potential for GT as long as it can hold above $10.75.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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