Next week will mark the second anniversary of MarketGrader’s Sentiment indicator, one of three ratings in our Top Down Analysis. While we didn’t start publishing our Sentiment scores on a regular basis until March of this year when we launched the beta version of our new web site, we have been tracking the new indicator very closely. Now, with the benefit of hindsight, having seen the performance of our Sentiment ratings for two years, we’ll be introducing new tools based on the Sentiment indicator to help our clients understand the factors influencing individual stocks in the short term and, most importantly, to profit from it. Our first step will be the daily publication of MarketGrader’s new Movers & Shakers list.
As a refresher, MarketGrader’s Sentiment indicator is designed to help investors anticipate moves in the price of a stock based on external, non-fundamental factors affecting the supply and demand for a company’s shares. It is meant to complement our main Fundamental rating. Our Sentiment indicator is comprised of four individual indicators: Price Trend, Price Momentum, Earnings Guidance and Short Interest. These four indicators are aggregated into a final score ranging from zero to ten. All Sentiment scores above seven are given a Positive rating, while scores below four are given a Negative rating. Everything in between is, of course, assigned a Neutral rating. Please visit our Top Down Tutorial for more information on the individual Sentiment indicators and how we calculate them.
In studying our Sentiment indicator during the last two years we have discovered that identifying patterns of improving or deteriorating sentiment based on the overall score is as useful, if not more, than the stand-alone Sentiment rating itself. We have found the indicator to be very helpful in measuring the ‘excitement’ surrounding a stock, perhaps in anticipation of an event or based on moves made by insiders and investors ‘in the know’ that may affect the stock price in the near future.
Take 3Par (PAR) for example; the subject of a widely publicized takeover battle between Dell (DELL) and Hewlett-Packard (HPQ), PAR has risen from $9.65 a share, where it closed in its last day of trading before Dell’s acquisition announcement, to last night’s close of $31.82, a remarkable 230% increase. And while the stock had been trading in a tight range since the beginning of the year, right until the bidding war started on August 16th, our Sentiment indicator started rising as early as one month before Dell’s initial bid of $18.
On July 17th our Sentiment indicator jumped from 3.89 to 4.17, in the process moving from Negative to Neutral. On July 24th it jumped again to 5.28, where it remained until July 31st when it increased to 5.70. And on August 7th our Sentiment indicator score for PAR increased again to 6.42, followed by yet another increase to 6.64 on August 14th, two days before Dell’s initial announcement. Thus, our Sentiment rating improved by 65% from the moment it started climbing, following a long period of stagnation, until the day Dell announced it was acquiring the company for almost twice as much as where it had been trading. As HPQ and DELL have continued to outbid each other our Sentiment indicator has continued to climb all the way to 8.28 where it currently stands. However, if an investor wanted to reap the benefit of such a remarkable appreciation from the very beginning, identifying the original 65% climb in our Sentiment score–over a very short period of time–would have made all the difference. You may click here to view the Sentiment History chart for PAR, which shows the score jumps described above.
In order to help investors identify short term, accelerating changes in Stock Sentiment, MarketGrader now monitors every day the changes in all stock’s sentiment across different time periods and measure the speed at which the changes occur. We’ll start publishing the top four-week movers that are gaining speed in a new list we’ll call Movers & Shakers. Below you may find our list for today. While we build new pages on our web site to publish these dynamically we’ll continue to update the list regularly here on our blog.
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