Cove Reflections
Float Runner Short-- DG FastChannel, Inc
| DGIT [NASD] |
| DG FastChannel, Inc. |
| Services | Business Services | USA |
Posted on the Forum "Pincher Plays" on 9/01 Click Here to Follow Thread
Early, immature Pincher begnning to setup that has some interesting and overall short-term dynamics in play:
Bullish Factors:
1. Bullish TA (see annotated Money Flow chart below; Click Here for Live Version )
2. Bullish TOR and Float Analysis to create a Short Squeeze environment (presented below)
3. Bullish Options Acty in terms of volume and call:put ratio
4. Positive News WRT considerable Share buyback authorization ( Read News )
Negative Factors:
1. Short Interest > 18% and Float Analysis suggests a possible 3-5% increase this period (presented below)
2. Fundamental Decay given the lowering of Q and Full Year Guidance (
Case Laid Out Very Well Here )
3.Insider Selling-- althoughsporadic, consistant (and August is somewhat suspicious to the timing of guidance SEC Form 4 Filings )
Neutral Factor: Lower Float = Higher Volatility. Currently Bears have a lock, but may have over-reached.
Options Option : Sept $17.50 Calls (Expire at close Friday, September 17, 2010):
9/3 Last: 0.35
Volume: 315
Open Interest: 2,046
Rho: 0.00
Vega: 0.01
Theta: -0.02
Gamma: 0.16
Delta: 0.29
Implied Volatility: 65%
Short Interest:
Assume 8/31 report will show an increase Short Interest equivalent to the avg of the last 5 reports (Short Interest Trend = 21.67%
Short Projected = 5.749M
Short % of Float Projected = 21.95%
Float Analysis:
TOR: 22.03% (desired above 3%)
Reported Float: 26,190,000
8MA: 5,770,000
WF: 18,671,720
EF: 48,882,563
%EF of Reported: **186.65% (desired above 30%. **When the Effective Float is > 100% of the Reported Float, there is an equity issue-- Naked Shorts or Dilution are the typical culprits.)
Short Interest: 18.08%%
Short Ratio: 3.80 (desired above 3)
Day TOR: 9.66%
Day Volume: 2,530,000
Float Analysis and Identifying a Short Condition
Float Analysis – Understanding the “health” of the publicly traded share supply in relationship to the demand is very beneficial in both terms of volatility (rate of change) and size. If the float of a company is very small and sees an upsurge in volume, it is prone to extreme volatility given an almost certain supply and demand imbalance. This has extremely attractive points for traders as well as not so attractive ones.
Investopedia explains Float
For example, a company may have 10 million outstanding shares, but only seven million are trading on the stock market. Therefore, this company's float would be seven million.
Stocks with small floats of less than seven million shares tend to be a lot more volatile than others.
So float size is an important dynamic that some traders seek out purposefully to exploit the volatility. Another dynamic is the number of shares traded in relationship to the size of the float.
Amex Short Interest
Nasdaq Short Interest
NYSE Short interest (via Nasdaq)
Change in Money Flow indicators (CMF & MFI short period over/under long), shift in money momentum (ChiOsc) and volume wane and reversal (PVO)
Example 1:
Example 2:
1. Float
What Does Float Mean?
The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.
The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.
For example, a company may have 10 million outstanding shares, but only seven million are trading on the stock market. Therefore, this company's float would be seven million.
Stocks with small floats of less than seven million shares tend to be a lot more volatile than others.
So float size is an important dynamic that some traders seek out purposefully to exploit the volatility. Another dynamic is the number of shares traded in relationship to the size of the float.
2. Thinly Traded
What Does Thinly Traded Mean?
An asset that cannot easily be sold or exchanged for cash without a substantial change in price. Thinly-traded securities in the financial markets are exchanged in low volumes and often have a limited number of interested buyers and sellers, which can often lead to volatile changes in price when a transaction does occur.
Also known as illiquid.
An asset that cannot easily be sold or exchanged for cash without a substantial change in price. Thinly-traded securities in the financial markets are exchanged in low volumes and often have a limited number of interested buyers and sellers, which can often lead to volatile changes in price when a transaction does occur.
Also known as illiquid.
Investopedia explains Thinly Traded
The stock prices of small unknown publically traded companies are deemed to be thinly traded. The lack of ready buyers and sellers generally leads to large discrepancies between the asking price and the bidding price. Thinly-traded securities are usually more risky than liquid assets because a small number of market participants can have such a large impact on the price.
The stock prices of small unknown publically traded companies are deemed to be thinly traded. The lack of ready buyers and sellers generally leads to large discrepancies between the asking price and the bidding price. Thinly-traded securities are usually more risky than liquid assets because a small number of market participants can have such a large impact on the price.
Float Turnover (TOR) = the average volume over X periods divided by the Reported Float.
The working theory is that a perfectly balanced float will typically run through a "cycle" in 3 months. Given that, a healthy Float (balance) is achieved when the daily session trades around 1% or monthly approximately 30% (21 trading days).Thinly Traded Stocks: (daily % < 1 of the Reported Float) are prone to increased volatility because of the supply/demand imbalance.
- On the one side a quick price spike can be achieved when volume suddenly surges as demand sees a rapid (perhaps even unexpected) increase.
- On the other side however is volume sustainment-- if the volume wanes the supply/demand relationship imbalance "flips," the price is susceptible to a precipitous decline and may become more difficult to sell depending on the number of shares owned.
Recognizing changes in Short PositionsFloat Runner Setup: This setup attempts to find stocks that have an increased supply/demand relationship that signals a higher probability for a sharper increase in a stock's share price over a shorter period of time.
- Can be used in conjunction with the Standard or Pincher Setup
- Additional setup that attempts to take advantage of a significant Short Ratio against a fundamental counter-propellant
Amex Short Interest
Nasdaq Short Interest
NYSE Short interest (via Nasdaq)
Change in Money Flow indicators (CMF & MFI short period over/under long), shift in money momentum (ChiOsc) and volume wane and reversal (PVO)
Example 1:
Example 2:
Screening for Stocks -- Fundamental Analysis
Introduction to Fundamental Screening: No matter if you are an Investor or a Swing, Momentum
or Day Trader, finding a good group of Stocks to place in a Portfolio of
Potentials is very beneficial for most and well worth the effort.
Resources:
1. Investopedia University
2. Morningstar Classroom
3. Finviz Screener Help
Basic fundamental data points and ratios:
A. Market Capitalization
Investopedia
explains Market Capitalization
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are:
Large Cap: $10 billion plus and include the companies with the largest market capitalization.
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion
Categorization of companies by capitalization
B. Style Box
D. Value Stock
E. Growth At A Reasonable Price - GARP
Investopedia
explains Growth At A Reasonable Price - GARP
GARP investing was popularized by legendary Fidelity manager Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the price/earnings growth (PEG) ratio. The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.
In a bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors, but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.
F. Terms:
1. Exchange: The stock exchange on which a company is listed. All stocks listed on: National Association of Securities Dealers Automated Quotation (NASDAQ), New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) are available.
2. Index: A stock's membership in a major stock exchange index such as Dow Jones Industrial or S&P 500. The stock indices track the performance various segments of the market.
3. Sector: Companies are divided into several groups - sectors - according to their business activities.
4. Industry: Companies in a common sector are further divided by products and services into smaller groups - industries.
G. Ratios:
1. P/E: A popular valuation ratio of a company's current share price compared to its per-share earnings (trailing twelve months). Low P/E value indicates a stock is relatively cheap compared to its earnings. For instance, a P/E value of 15 means that the current price equals the sum of 15-year earnings per share. The average level varies across the market. Therefore, P/E value should be compared per sector or industry.
2. Forward P/E: A measure of the price-to-earnings ratio using forecasted earnings for the P/E calculation for the next fiscal year. If the earnings are expected to grow in the future, the forward P/E will be lower than the current P/E.
3. PEG: A ratio used to determine a stock's value while taking into account the earnings' growth. PEG is used to measure a stock's valuation (P/E) against its projected 3-5 year growth rate. It is favored by many over the price/earnings ratio because it also takes growth into account. A lower PEG ratio indicates that a stock is undervalued.
4. P/S: A ratio that reflects the value placed on sales by the market. It is calculated by dividing the current closing price of the stock by the dollar-sales value per share. The ratio is often used to value unprofitable companies.
5. P/B: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is either undervalued or something is fundamentally wrong with the company.
6. Price/Cash: A ratio used to compare a stock's market value to its cash assets. It is calculated by dividing the current closing price of the stock by the latest quarter's cash per share.
7. Price/Free Cash Flow: A valuation metric that compares a company's market price to its level of annual free cash flow.
8. Return on Assets: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
9. Return on Equity: A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. Calculated as Net Income / Shareholder's Equity.
10. Return on Investment: Performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment.
11. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as Current Assets / Current Liabilities.
12. Quick Ratio: An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Calculated as (Current Assets - Inventories) / Current Liabilities.
13. Long Term Debt/Equity: A measure of a company's financial leverage calculated by dividing its long term debt by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
14. Debt/Equity: A measure of a company's financial leverage calculated by dividing its liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Fundamental Trend of The Market: typical -vs- current
Screeners:
Morningstar: Stock Selector
1. Presets: Preset Screeners
2. Weighing/Scoring: Score Integration
Finviz: Stock Screener
Resources:
1. Investopedia University
2. Morningstar Classroom
3. Finviz Screener Help
A. Market Capitalization
What
Does Market Capitalization Mean?
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.
Frequently referred to as "market cap".
The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.
Frequently referred to as "market cap".
If a company has 35 million shares outstanding, each with a market value of $100, the company's market capitalization is $3.5 billion (35,000,000 x $100 per share).
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals differ on their exact definitions, but the current approximate categories of market capitalization are:
Large Cap: $10 billion plus and include the companies with the largest market capitalization.
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion
Categorization of companies by capitalization
Traditionally, companies are divided into large-cap, mid-cap, and small-cap. Recently people have added 'micro-cap' and 'nano-cap'. People have rules of thumb to determine category from market capitalization. These need to be adjusted over time due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950 but it is not very large now), and they may be different for different countries. A rule of thumb may look like:[3]
- Mega-cap: Over $200 billion
- Large-cap: $10 billion–$200 billion
- Mid-cap: $2 billion–$10 billion
- Small-cap: $300 million–$2 billion
- Micro-cap: $50 million-$300 million[4]
- Nano-cap: Below $50 million
Different numbers are used by different indexes; there is no official definition of or general agreement about the exact cutoffs. They also may be done by percentiles rather than fixed cutoffs.
B. Style Box
What
Does Style Box Mean?
Created by Morningstar, a style box is designed to visually represent the investment characteristics of fixed-income (bond), domestic equity (stock) and international equity (stock) securities and their respective mutual funds. A style box is a valuable tool for investors to use to determine the asset allocation and risk-return structures of their portfolios and/or how a security fits into their investing criteria. There are slightly different style boxes used for equity and fixed-income funds.
Created by Morningstar, a style box is designed to visually represent the investment characteristics of fixed-income (bond), domestic equity (stock) and international equity (stock) securities and their respective mutual funds. A style box is a valuable tool for investors to use to determine the asset allocation and risk-return structures of their portfolios and/or how a security fits into their investing criteria. There are slightly different style boxes used for equity and fixed-income funds.
Investopedia
explains Style Box
For stock funds (domestic and international), the horizontal axis of the style box is divided into three investment style categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market-capitalization) indicators: large, medium and small.
For bonds and bond funds, the horizontal axis is divided into three maturity categories: short-term, intermediate-term, and long-term. The vertical axis is divided into three credit-quality categories: high, medium and low (BB-C).
Investors can use a style box to put together mutual fund portfolio and visually see the results as a total picture. For example, an investor looking for a relatively safe stock fund would seek out one categorized as a large-cap value fund. If that same investor is willing to accept more risk for the opportunity of a greater return, he/she might select a fund in the small-cap growth category. Putting dollar values on the fund selections in the same and/or differing category squares will readily reflect the risk-return parameters of the whole portfolio.
C. Growth Stock
Investopedia
explains Growth Stock
A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.
Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.
For stock funds (domestic and international), the horizontal axis of the style box is divided into three investment style categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market-capitalization) indicators: large, medium and small.
For bonds and bond funds, the horizontal axis is divided into three maturity categories: short-term, intermediate-term, and long-term. The vertical axis is divided into three credit-quality categories: high, medium and low (BB-C).
Investors can use a style box to put together mutual fund portfolio and visually see the results as a total picture. For example, an investor looking for a relatively safe stock fund would seek out one categorized as a large-cap value fund. If that same investor is willing to accept more risk for the opportunity of a greater return, he/she might select a fund in the small-cap growth category. Putting dollar values on the fund selections in the same and/or differing category squares will readily reflect the risk-return parameters of the whole portfolio.
C. Growth Stock
What
Does Growth Stock Mean?
Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.
Also known as a "glamor stock".
Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.
Also known as a "glamor stock".
A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.
Note that a growth company's stock is not always classified as growth stock. In fact, a growth company's stock is often overvalued.
D. Value Stock
What
Does Value Stock Mean?
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
Investopedia
explains Value Stock
A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter.
A value investor believes that the market isn't always efficient and that it's possible to find companies trading for less than they are worth. An easy way to attempt to find value stocks is to use the "Dogs of the Dow" investing strategy - buying of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter.
E. Growth At A Reasonable Price - GARP
What
Does Growth At A Reasonable Price - GARP Mean?
An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding companies that have very high valuations (value investing). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low price/earnings (P/E) multiples in normal market conditions.
An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding companies that have very high valuations (value investing). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low price/earnings (P/E) multiples in normal market conditions.
GARP investing was popularized by legendary Fidelity manager Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the price/earnings growth (PEG) ratio. The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.
In a bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors, but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.
F. Terms:
1. Exchange: The stock exchange on which a company is listed. All stocks listed on: National Association of Securities Dealers Automated Quotation (NASDAQ), New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) are available.
2. Index: A stock's membership in a major stock exchange index such as Dow Jones Industrial or S&P 500. The stock indices track the performance various segments of the market.
3. Sector: Companies are divided into several groups - sectors - according to their business activities.
4. Industry: Companies in a common sector are further divided by products and services into smaller groups - industries.
G. Ratios:
1. P/E: A popular valuation ratio of a company's current share price compared to its per-share earnings (trailing twelve months). Low P/E value indicates a stock is relatively cheap compared to its earnings. For instance, a P/E value of 15 means that the current price equals the sum of 15-year earnings per share. The average level varies across the market. Therefore, P/E value should be compared per sector or industry.
|
P/E = Current Market Price / Earnings Per Share (EPS) P/E = Average Common Stock Price / Net Income Per Share EPS = (Net Income - Dividends On Preferred Stock) / Average Outstanding Shares |
2. Forward P/E: A measure of the price-to-earnings ratio using forecasted earnings for the P/E calculation for the next fiscal year. If the earnings are expected to grow in the future, the forward P/E will be lower than the current P/E.
|
Forward P/E = Current Market Price / Forceasted Earnings Per Share |
3. PEG: A ratio used to determine a stock's value while taking into account the earnings' growth. PEG is used to measure a stock's valuation (P/E) against its projected 3-5 year growth rate. It is favored by many over the price/earnings ratio because it also takes growth into account. A lower PEG ratio indicates that a stock is undervalued.
|
PEG = (P/E) / Annual EPS Growth |
4. P/S: A ratio that reflects the value placed on sales by the market. It is calculated by dividing the current closing price of the stock by the dollar-sales value per share. The ratio is often used to value unprofitable companies.
|
P/S = Current Market Price / Total Revenues Per Share |
5. P/B: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is either undervalued or something is fundamentally wrong with the company.
|
P/B = Current Market Price / (Total Assets - Total Liabilities) P/B = Current Marker Price / (Total Common Equity / Total Common Shares Outstanding) Book Value = (Total Assets - Total Liabilities) = Share Holder's Equity |
6. Price/Cash: A ratio used to compare a stock's market value to its cash assets. It is calculated by dividing the current closing price of the stock by the latest quarter's cash per share.
| P/C = Current Market Price / Cash per Share |
7. Price/Free Cash Flow: A valuation metric that compares a company's market price to its level of annual free cash flow.
| P/FCF = Current Market Price / Cash Flow per Share |
8. Return on Assets: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
|
ROA = Annual Earnings / Total Assets |
9. Return on Equity: A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. Calculated as Net Income / Shareholder's Equity.
|
ROE = Annual Net Income / Share Holder's Equity ROE = Annual Net Income / Book Value ROE = Annual Net Income / (Total Assets - Total Liabilities) |
10. Return on Investment: Performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment.
|
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment. |
11. Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as Current Assets / Current Liabilities.
|
Current Ratio = Current Assets / Current Liabilities |
12. Quick Ratio: An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Calculated as (Current Assets - Inventories) / Current Liabilities.
|
Quick Ratio = (Current Assets - Inventories) / Current Liabilities |
13. Long Term Debt/Equity: A measure of a company's financial leverage calculated by dividing its long term debt by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
|
LT Debt/Equity = Long Term Debt / (Share Holder's Equity) LT Debt/Equity = Long Term Debt / (Total Assets - Total Liabilities) LT Debt/Equity = Long Term Debt / (Book Value) |
14. Debt/Equity: A measure of a company's financial leverage calculated by dividing its liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
|
Debt/Equity = Current Liabilities / (Share Holder's Equity) Debt/Equity = Current Liabilities / (Total Assets - Total Liabilities) Debt/Equity = Current Liabilities / (Book Value) |
Fundamental Trend of The Market: typical -vs- current
Screeners:
Morningstar: Stock Selector
1. Presets: Preset Screeners
2. Weighing/Scoring: Score Integration
Finviz: Stock Screener
Momentum Indicators-- Technical Analysis
Taken from Stockcharts.com: Generally speaking, momentum measures the rate-of-change of a security's price. As the price of a security rises, price momentum increases. The faster the security rises (the greater the period-over-period price change), the larger the increase in momentum. Once this rise begins to slow, momentum will also slow. As a security begins to trade flat, momentum starts to actually decline from previous high levels.
Thus the wind-- direction and intensity or lack thereof are sought after by Technical Analysts routinely...
Momentum indicators are considered "leading"-- also from Stockcharts.com:
Leading Indicators: As their name implies, leading indicators are designed to lead price movements. Most represent a form of price momentum over a fixed look-back period, which is the number of periods used to calculate the indicator. For example, a 20-day Stochastic Oscillator would use the past 20 days of price action (about a month) in its calculation. All prior price action would be ignored.
Benefits and Drawbacks of Leading Indicators: There are clearly many benefits to using leading indicators. Early signaling for entry and exit is the main benefit. Leading indicators generate more signals and allow more opportunities to trade. Early signals can also act to forewarn against a potential strength or weakness. Because they generate more signals, leading indicators are best used in trading markets. These indicators can be used in trending markets, but usually with the major trend, not against it. In a market trending up, the best use is to help identify oversold conditions for buying opportunities. In a market that is trending down, leading indicators can help identify overbought situations for selling opportunities.
With early signals comes the prospect of higher returns and with higher returns comes the reality of greater risk. More signals and earlier signals mean that the chances of false signals and whipsaws increase. False signals will increase the potential for losses. Whipsaws can generate commissions that can eat away profits and test trading stamina.
Momentum Indicators:
- Aroon
- Commodity Channel Index (CCI)
- Rate of Change (ROC)
- Relative Strength Index (RSI)
- Stochastics (%K, %D)
- StochRSI
- TRIX
- Ultimate Oscillator (ULT)
- Williams %R (Wm%R)
We will look at Aroon, Relative Strength Index (RSI), Stochastics (%K, %D), and Williams %R (Wm%R)
1. Aroon
3. Stochastic Oscillator (Fast, Slow, and Full)
4. Williams %R
Examples:
| REXX [NASD] |
| Rex Energy Corporation |
| Basic Materials - Oil & Gas Drilling & Exploration - USA |
| APWR [NASD] |
| A-Power Energy Generation Systems, Ltd. |
| Utilities - Electric Utilities - China |
Equity Use -- Fundamental Analysis
A Public Company's tap into Equity appears to be on the rise given current credit market conditions.
It should come as no surprise to traders/investors that companies will from time to time use their equity to further their goals. It is expected-- and in many cases desired -- for keeping companies afloat and/or moving them forward...
However, there is no denying the "pain" that comes from the dilution (fundamentally) and float "bloat" (technically).
Given that the use must exist and the accompanying pain must be tolerated to trade, what makes the best use to satisfy both company and trader/investor?
In general terms, to get a basic understanding of the "vehicles," let's break them down into 3 main categories:
1. Offering (Public and Registered)
--Quick (and in some cases sharp) share price drop . Pain is then over
--Company sold (desired) –vs- Investor Sold (useless)
--Shares immediately (in terms of weeks) to retail—then assume “normal” behavior
--Shortest definitive influential period—all “standard”
--Bump/Blip
2. Private Placement (Private and not registered)
--Blunt Pain – queasy period – pain returns
--Size of Offering w/ or w/o accompanying warrants determines pain threshold
--Shares to “Qualified Investors”—could be “pledged" or go to 2ndary market—eventually (6 month waiting period if unregistered) enter retail—then assume normal behavior
--Prolonged influential period --Choppy Zone but can predict relatively "safe" area
3. Convertibles (Private where conversions may be either registered or not)
--Blunt to Quick – then Chronic Blunt with aperiodic Sharp episodes
--Shares –vs- Notes/Debentures (include the crossbreed SEDA in this category)
--Shares upon conversion—could be “pledged" or go to 2ndary market—eventually (6 month waiting period if unregistered) enter retail—then assume normal* behavior
--Open-ended influential period proportional to conversion feature w/ “floorless” effectively creating infinity*
--Continuing Spiral (* for ruthless financiers, a typical cycle of shorting; converting; pumping & selling will eventually kill the company but drive enormous profits for the financier)
Example #1
Example #2
Example #3
It should come as no surprise to traders/investors that companies will from time to time use their equity to further their goals. It is expected-- and in many cases desired -- for keeping companies afloat and/or moving them forward...
However, there is no denying the "pain" that comes from the dilution (fundamentally) and float "bloat" (technically).
Given that the use must exist and the accompanying pain must be tolerated to trade, what makes the best use to satisfy both company and trader/investor?
In general terms, to get a basic understanding of the "vehicles," let's break them down into 3 main categories:
1. Offering (Public and Registered)
--Quick (and in some cases sharp) share price drop . Pain is then over
--Company sold (desired) –vs- Investor Sold (useless)
--Shares immediately (in terms of weeks) to retail—then assume “normal” behavior
--Shortest definitive influential period—all “standard”
--Bump/Blip
2. Private Placement (Private and not registered)
--Blunt Pain – queasy period – pain returns
--Size of Offering w/ or w/o accompanying warrants determines pain threshold
--Shares to “Qualified Investors”—could be “pledged" or go to 2ndary market—eventually (6 month waiting period if unregistered) enter retail—then assume normal behavior
--Prolonged influential period --Choppy Zone but can predict relatively "safe" area
3. Convertibles (Private where conversions may be either registered or not)
--Blunt to Quick – then Chronic Blunt with aperiodic Sharp episodes
--Shares –vs- Notes/Debentures (include the crossbreed SEDA in this category)
--Shares upon conversion—could be “pledged" or go to 2ndary market—eventually (6 month waiting period if unregistered) enter retail—then assume normal* behavior
--Open-ended influential period proportional to conversion feature w/ “floorless” effectively creating infinity*
--Continuing Spiral (* for ruthless financiers, a typical cycle of shorting; converting; pumping & selling will eventually kill the company but drive enormous profits for the financier)
Example #1
| REXX [NASD] |
| Rex Energy Corporation |
| Basic Materials - Oil & Gas Drilling & Exploration - USA |
Example #2
| APWR [NASD] |
| A-Power Energy Generation Systems, Ltd. |
| Utilities - Electric Utilities - China |
Example #3
| OCNF [NASD] |
| OceanFreight, Inc. |
| Services - Shipping - Greece |
Introduction to Money Flow-- Technical Analysis
Momentum and Trending Indicators are extremely useful to help gauge the direction and strength of a stock movement. However,trading activity at its core is the ongoing battle over share supply and demand.
Given the onset of the financial crunch, it appears that more companies are choosing to tap into their equity more frequently.More so now, but even under “normal” conditions, Money Flow (or Volume)Indicators play a role in helping to understand that buying/selling relationship.
The following are the basics of charting Money Flow indicators and how to utilize them to spot irregularities in buying and selling pressures.
Daily Chart Indicators:
On Balance Volume (OBV): OBV is a simple indicator that adds a period's volume when the close is up and subtracts the period's volume when the close is down. Accumulative total of the volume additions and subtractions forms the OBV line. This line can then be compared with the price chart of the underlying security to look for divergence or confirmation.
Accumulation/Distribution Line (A/D): A momentum indicator that relates price changes with volume. It relates the closing price to the range of prices (High to Low). The closer the close is to the high, the more volume is added to the cumulative total.
Chaikin Oscillator (ChiOsc): This is a moving average of the A/D. It is created by subtracting a 10period exponential moving average of the accumulation/distribution line from a 3 period exponential average of it.
Chaikin Money Flow (CMF): An oscillator that helps signal if a stock is undergoing accumulation or distribution. It is calculated from the daily readings of the A/D.The CMF is unlike a momentum oscillator in that it is not influenced by the daily price change. Instead, the indicator focuses on the location of the close relative to the range for the period (daily or weekly).
Money Flow Index (MFI): A volume-weighted momentum indicator that measures the strength of money flowing in and out of a security. It compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend.
Intraday Chart Indicators:
Volume+: The Volume+ indicator identifies by colored bars when the trading volume contributed to a gain in price and when the trading volume was associated with a loss in price. The colors are labeled in the legend above the indicator. In addition to the color coding, the Volume+ indicator displays a symbol's50-day average volume as a reference point.
Divergence: A situation that occurs when two lines on a chart move in opposite directions vertically. There are two kinds of divergences: positive and negative. A positive divergence occurs when the indicator moves higher while the stock is declining. A negative divergence occurs when the indicator moves lower while the stock is rising.
Whipsaw: A whipsaw occurs when a buy or sell signal is reversed in a short time. Volatile markets and sensitive indicators can cause whipsaws.
Notes: CMF and A/C line represent retail buying/sentiment— when the overall trend is down you can interpret it as Retail Buyers beginning to lose faith in the movement.
ChiOsc and MFI represent Sellers affect on “normal” trading. When they are providing more supply than the demand can handle (MFI), money momentum is degraded/stopped (ChiOsc). ChiOsc will tell you when the run is losing momentum and MFI will tell you when the demand fades but the sellers remain. When the ChiOsc collapses along with a down trending MFI against flat or uptrending OBV, A/D and CMF, it can be interpreted as retailers trying to "catch a falling knife."
Given that, for momentum generated runs, the emphasis is placed on the average price to qualify/quantify supply/demand battles. Both CMF and MFI are tracked in multiple periods-- 3 periods for short-term trying to quantify the daytrader, flipper and heavy sellers and 21 periods to trend based on a typical month.
In the example below, periods 1 and 2 show normal buying/selling into a pop. Period 3 shows ChiOsc divergence during basing, suggesting a load into a pending run. Period 4 shows the selling shift as well as the Retail attempt to support price as momentum collapsed-- ominous foreboding going into Friday.
In the next example, the "devil in the details" detection can be more readily seen on an Intraday chart. Both the Money Flow and Volume Accumulation indicators whipsawed for the first 1 1/2 hours on Thursday before the ultimate crash during the 1:45 time block.
Given the onset of the financial crunch, it appears that more companies are choosing to tap into their equity more frequently.More so now, but even under “normal” conditions, Money Flow (or Volume)Indicators play a role in helping to understand that buying/selling relationship.
The following are the basics of charting Money Flow indicators and how to utilize them to spot irregularities in buying and selling pressures.
Daily Chart Indicators:
On Balance Volume (OBV): OBV is a simple indicator that adds a period's volume when the close is up and subtracts the period's volume when the close is down. Accumulative total of the volume additions and subtractions forms the OBV line. This line can then be compared with the price chart of the underlying security to look for divergence or confirmation.
Accumulation/Distribution Line (A/D): A momentum indicator that relates price changes with volume. It relates the closing price to the range of prices (High to Low). The closer the close is to the high, the more volume is added to the cumulative total.
Chaikin Oscillator (ChiOsc): This is a moving average of the A/D. It is created by subtracting a 10period exponential moving average of the accumulation/distribution line from a 3 period exponential average of it.
Chaikin Money Flow (CMF): An oscillator that helps signal if a stock is undergoing accumulation or distribution. It is calculated from the daily readings of the A/D.The CMF is unlike a momentum oscillator in that it is not influenced by the daily price change. Instead, the indicator focuses on the location of the close relative to the range for the period (daily or weekly).
Money Flow Index (MFI): A volume-weighted momentum indicator that measures the strength of money flowing in and out of a security. It compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend.
Intraday Chart Indicators:
Volume+: The Volume+ indicator identifies by colored bars when the trading volume contributed to a gain in price and when the trading volume was associated with a loss in price. The colors are labeled in the legend above the indicator. In addition to the color coding, the Volume+ indicator displays a symbol's50-day average volume as a reference point.
Money Flow: The Money Flow indicator attempts to measure the amount of money buying a stock vs. the amount of money selling a stock. It does this by assuming that when a stock closes higher than its open, all volume associated with that trading period results from buyers. It further assumes that when a stock closes lower than its open, all volume associated withthat trading period results from sellers. Although these assumptions are overly simplistic, money flow can be a useful indicator when analyzing the general buying and selling pressure on a stock.
Volume Accumulation: The Volume Accumulation indicator, is a modification of the traditional OBV indicator. Instead of assigning all the period's volume to either buyers or sellers, the Volume Accumulator uses a proportional amount of volume based on the relationship between the closing price and its intra-period mean price. In effect, the indicator is measuring shades of gray that traditional volume indicators like OBV miss.However, if prices close at the period's high or low, all volume forthat period will be assigned accordingly, regardless of the relationship to the intra-period mean price.Movement of the oscillator above the zero line measures buying pressure, while movement below the zero line measures selling pressure.
General Term:Divergence: A situation that occurs when two lines on a chart move in opposite directions vertically. There are two kinds of divergences: positive and negative. A positive divergence occurs when the indicator moves higher while the stock is declining. A negative divergence occurs when the indicator moves lower while the stock is rising.
Whipsaw: A whipsaw occurs when a buy or sell signal is reversed in a short time. Volatile markets and sensitive indicators can cause whipsaws.
Notes: CMF and A/C line represent retail buying/sentiment— when the overall trend is down you can interpret it as Retail Buyers beginning to lose faith in the movement.
ChiOsc and MFI represent Sellers affect on “normal” trading. When they are providing more supply than the demand can handle (MFI), money momentum is degraded/stopped (ChiOsc). ChiOsc will tell you when the run is losing momentum and MFI will tell you when the demand fades but the sellers remain. When the ChiOsc collapses along with a down trending MFI against flat or uptrending OBV, A/D and CMF, it can be interpreted as retailers trying to "catch a falling knife."
Given that, for momentum generated runs, the emphasis is placed on the average price to qualify/quantify supply/demand battles. Both CMF and MFI are tracked in multiple periods-- 3 periods for short-term trying to quantify the daytrader, flipper and heavy sellers and 21 periods to trend based on a typical month.
In the example below, periods 1 and 2 show normal buying/selling into a pop. Period 3 shows ChiOsc divergence during basing, suggesting a load into a pending run. Period 4 shows the selling shift as well as the Retail attempt to support price as momentum collapsed-- ominous foreboding going into Friday.
In the next example, the "devil in the details" detection can be more readily seen on an Intraday chart. Both the Money Flow and Volume Accumulation indicators whipsawed for the first 1 1/2 hours on Thursday before the ultimate crash during the 1:45 time block.
Template Approach DD Example: Broadwind Energy, Inc
Template Approach Example: Broadwind Energy, Inc BWEN
1. Overview:
(1) Company: http://www.finviz.com/quote.ashx?t=bwen
(2) Industry/Sector: http://www.tickerspy.com/index/Wind-Energy-Stocks
(3) Index: http://www.cleanedge.com/ceindex/
(4) National/Global: http://windpowerstockstowatch.blogspot.com/2009/10/wind-power-stocks-in-news.html
2. Capital Structure:
(1) Confirmation: http://www.sec.gov/Archives/edgar/data/1120370/000104746910000185/a2196102z424b4.htm
(2) Stock Holder’s Equity: Common & Preferred Shares http://www.sec.gov/Archives/edgar/data/1120370/000110465909061909/a09-31192_110q.htm
(3) Secretary of State: https://delecorp.delaware.gov/tin/controller
3. Key Fundamentals:
(1) “Report Card” http://quote.morningstar.com/stock/s.aspx?t=bwen
a. Growth: The growth grade shows how a company's growth compares with that of other stocks in its sector. It measures not only how fast a company's sales are growing, but how consistent that growth has been and whether it is speeding up or slowing down. The growth grade encapsulates the most important information about a company's growth into a single rating, allowing easy comparison between companies.
b. Profitability: The profitability grade shows how well a company's profitability, as measured by its return on assets, compares with its sector. It measures not only raw profitability, but also whether a company's ROA is consistent and improving. The profitability grade encapsulates the most important information about profitability into a single rating, which allows easy comparisons between companies.
c. Financial Health: To get a high financial health grade, a company should have low financial leverage (assets/equity), high cash-flow coverage (total cash flow/long-term debt), and a large cash position (cash/assets). Also, companies with improving financial health are rewarded, while those with deteriorating health are penalized.
(2) “Stop Light” http://www.finviz.com/quote.ashx?t=bwen
(3) Example of faulty data:
a. finviz hasn’t updated most recent Short Interest Report (3.15%).
b. Short squeeze hasn’t updated the Float (3.82%).
c. True Short % = 3,102,500 / 91,700,000 = 3.38%
(4) Reg SHO Threshold Security List: http://www.nasdaqtrader.com/Trader.aspx?id=RegSHOThreshold
(5) Naked Short: http://www.buyins.net/tools/short_list.php?ssd=20100127
5. Equity Influence:
(1) Equity Incentive Plan: Note 12 http://www.sec.gov/Archives/edgar/data/1120370/000110465909061909/a09-31192_110q.htm
(2) Private Placement: LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
(3) Shelf Registration: Financing and Liquidity
6. Ownership Sentiment:
(1) Insider Sells/Buys:
(2) Institution/Fund Sells/Buys:
a. http://www.mffais.com/bwen
b. http://www.j3sg.com/Reports/Stock-Insider/generate-Institution.php?tickerLookUp=BWEN&pageNumber=1&descending=1&sortBy=value
(3) Analyst Opinion: http://www.briefing.com/Investor/Public/Calendars/UpgradesDowngrades.htm
7. Litigation:
(1) Within Filings (10Q/K) Note 15
8. Past/Present News:
http://finance.yahoo.com/news/A-Major-Score-for-Wind-Energy-indie-1616332209.html?x=0&.v=1
http://blogs.barrons.com/techtraderdaily/2010/01/14/broadwind-sags-as-pickens-slashes-wind-turbine-order-will-stock-deal-price-tonight/?mod=yahoobarrons
9. Fundamental Milestones: Alt/Clean Energy Support—Federal, State
(1) Earnings: http://earningswhispers.com/calendar.asp
(1) Earnings: http://earningswhispers.com/calendar.asp
Float Runner Short-- Matrixx Initiatives Inc
| MTXX [NASD] |
| Matrixx Initiatives Inc. |
| Healthcare - Drug Delivery - USA |
Posted at the Lion on 1/09 with Live Chart version Click Here to Read Post
Interesting set of dynamics: against an infamous negative backdrop swirling in continuing litigation (re: Zicam); MTXX has current favorable TA, favorable float analysis, favorable FA ratios, and anticipated earnings report (due 1/25) -vs- a substantial short interest...
Additionally:
--Noted "heightened awareness" to the current flu season to which Zicam products may have benefited from in terms of increased sales
--Recent hiring of a new Ad Agency (duly noting that work doesn't look to hit the streets until April: Adweek.com )
Short Interest history peaked in Sep but is currently on back-to-back increases:
12/15/2009 1,965,684
11/30/2009 1,867,531
11/13/2009 1,818,159
10/30/2009 1,928,680
10/15/2009 2,131,552
09/30/2009 2,335,129
09/15/2009 2,241,372
08/31/2009 2,163,304
08/14/2009 1,963,360
07/31/2009 2,073,931
07/15/2009 2,134,554
06/30/2009 1,891,662
06/15/2009 387,965
Float Analysis:
TOR: 2.24%
Reported Float: 9,100,000
8MA: 203,440
WF: 658,332
EF: 1,723,513
RF: 4,512,156
EF% of Reported: 18.94%
Short Interest: 21.6%
Short Ratio: 5.2
1/8 TOR: 3.37%
1/8 Vol: 306,230
Would like to see a daily volume of ~325k shares for more effective pressure -vs- short position.
Pincher Prospect-- Harmonic Inc
| HLIT [NASD] |
| Harmonic Inc. |
| Technology - Communication Equipment - USA |
Posted at the Lion on 11/16 with Live Chart version Click Here to Read Post
