Since the release of our redesigned web site about a year ago one of the most popular new features with our subscribers has been our Top Down Analysis. In it, MarketGrader complements its traditional Fundamental or Bottom Up Analysis with three top down indicators: our Sector Rating, Sub-Industry Rating and Sentiment Rating. These three combine to provide context and timeliness to our Buy, Hold or Sell rating by focusing on factors such as supply and demand as well as market momentum that affect stock prices in the near term irrespective of company fundamentals. And among these three new indicators none has become more popular or more widely followed among MarketGrader subscribers than the Sentiment indicator. We have received numerous inquiries from our clients about how it works, asking for more information on the underlying indicators that make up our Sentiment score and rating. We have listened to these requests and are pleased to announce the release of our newest feature, a dedicated Sentiment Analysis page for every company that we cover.
Beginning today, when you log into your MarketGrader.com account and enter any ticker symbol or name and land on our Classic page, you will notice a new link between ‘Fundamental Analysis’ and ‘Top Down’ called ‘Sentiment.’ When you click on it you’ll land on our new page, which breaks down our Sentiment Analysis based on its four underlying indicators. Above the four indicators you’ll see the stock’s overall Sentiment score (from 0-10) and our Positive, Neutral or Negative Sentiment signal.
Our first indicator, called Price Trend, relies for the most part on a MACD (Moving Average Convergence Divergence) analysis. MACD is essentially a technical study (meaning it is based on stock prices) used to determine price trend for any given security. It is calculated based on the rolling moving average of stock prices for given periods of time; these periods vary depending on the inputs used. For example, some investors prefer using shorter-term MACD analyses while others use longer term. Also, the frequency of the observations, or points used to calculate the averages, be it daily, weekly or monthly prices, will determine the smoothness of the lines on the chart and hence the indicators that are used to determine price trend. In our analysis we use a five-year study with weekly observations. There are two primary things to focus on regarding the MACD analysis. The first one is the positioning of the lines relative to the zero line and the second one is the interaction between the MACD line and the MACD Average line. If the current point of the lines lies above the zero line the price momentum is positive. And if the MACD lies above the MACD Average, the price trend is positive (it means recent prices are running higher than the average of prices over a longer stretch of time). The opposite happens, of course, if the lines lie below the zero line and the MACD stands below the MACD Average. In other cases both can combine into different permutations, which means you can have a stock with positive momentum but a negative trend or negative momentum and a positive trend, for example. Our Sentiment page shows you the actual chart used in calculating our indicator. When you hover with your cursor over the lines on the chart you will see a tool tip pop up giving you the underlying values for that point in time. On the left side of the page MarketGrader tells you if the MACD is above or below the MACD Average, if the Oscillator (separation between the lines) is positive or negative and whether the overall price trend is positive, neutral or negative. We also display here, of course, our indicator grade. Like with all other Sentiment indicators, the beauty of using MarketGrader to follow sentiment is that you don’t need to be watching a chart constantly to know when two lines crossed each other or spend a long time trying to divine technical charts. MarketGrader follows these for you and translates them into easy to understand, contextual and actionable indicators.
The next section of the new Sentiment page displays our Price Momentum indicator. Like the Price Trend indicator above it, this indicator is also based on technical data. More specifically the indicator combines the stock’s price trend calculated using MACD as described above with a relative strength rank of the stock against all other stocks in MarketGrader’s coverage universe. This indicator is useful in identifying strength behind specific trends. For example, a positive price trend within the context of a negative market is more useful than a positive trend within a bullish market. After all, if all stocks are rising, finding any given stock that is also rising isn’t that challenging whereas identifying stocks that buck the trend relative to the rest of the market is much more valuable. This section of the page displays the stock’s percentile rank, the indicator grade and a two-year price chart.
The next section displays our Earnings Guidance indicator. This indicator tracks the ongoing trend in consensus earnings estimate revisions for the company’s next fiscal year over the last three months. This trend is displayed on one of the charts, which show what the consensus is today and what it was one and three months ago. A similar chart next to it displays the fiscal year earnings per share for each of the last three years, providing context for the current year’s report. Below the indicator grade we display the current consensus estimate, the consensus estimate from three months ago and the change between the two.
The last section of the page displays our Short Interest indicator. MarketGrader tracks the number of shares of every company’s public float (shares not owned by institutions and available to the public) sold short every month as reported by the stock exchanges. When an investor sells a stock short, he borrows the shares, betting that the price will decline and that he will, at a later date, be able to buy back the shares at a lower price, return them to the lender and keep the difference. Stocks with large short interest positions are, in theory, expected to fall in price at least based on the theory that the collective wisdom of all short sellers must be right. However, short interest can also be a contrarian indicator. When too many investors are betting against a stock eventually a large number of them will have to buy the stock back to repay it. If this happens all at once, the resulting jump in price could be pretty sharp. Our Short Interest indicator tracks not only the overall short interest but also the change over several months. This section of the page displays two pie charts depicting public float as a percentage of shares outstanding and short interest as a percentage of float. The table below the indicator’s grade displays the change in short interest over three months as well as totals for shares outstanding and public float.
At the bottom of the new Sentiment page you will find our popular Sentiment History Two Year chart. In it you may track the stock’s sentiment score on a daily basis over the last two years. Below you may see two examples of the new Sentiment page. Please log into your account or take a free trial to see our Sentiment Analysis for any of the stocks we cover. We hope you enjoy this latest addition to MarketGrader.com.