Daily Stock Market Equity and Options Trading Commentary

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Thursday, April 2, 2009

One of My Methods to Finding Bullish Stocks

I have defined what the Bull to Bear ratio is, now I will define another method of how I find strong stocks. It is through Investor's Business Daily and requires a membership and some idea of strong stocks before hand. One great feature of this site is that every day there is an updated list of "stocks on the move" both up and down. The "stocks on the move" ranks 5 stocks being BOUGHT/SOLD heavily by institutional investors. This is a great way to find strong and weak stocks on a daily basis.

IBD ranks over thousands of stocks, they do not rank ETF's. Let's say you want to see what Google ranks, you'd enter GOOG into the "evaluate stocks" tab and it will return a score known as the "composite rating". To get a more detailed list you'll need to click on the ticker symbol after "quick ratings for (GOOG in this case), or for a more detailed report click "go to Full Stock Checkup". They will give a score for each of 5 categories defined below and a composite score.

Now for the method IBD uses to rank stocks. (all descriptions below are taken directly from the IBD website)

Composite Rating: The IBD SmartSelect Composite Rating combines all 5 SmartSelect® Ratings into one easy-to-use rating. More weight is placed on EPS and RS Rating, and the stock's percent off its 52-week high is also included in the formula. Results are then compared to all other companies, and each company is assigned a rating from 1-99 with 99 being the best. A 90 rating means that the stock has outperformed 90% of all other stocks in terms of its combined SmartSelect Ratings."

EPS Rating: Exclusive rating found in Investor’s Business Daily's SmartSelect® Corporate Ratings. Stocks are rated on a 1 to 99 scale (with 99 being best) comparing a company’s earnings per share growth on both a current and annual basis with all other publicly traded companies in the William O’Neil + Co database. Stocks with EPS Ratings of 80 or above have outperformed 80% of all publicly traded companies in earnings. The EPS Rating combines each company’s most recent two quarters of earnings-per-share growth with its three- to five-year annual growth rate.

RS Rating:This IBD SmartSelect® Corporate Rating is a measure of a stock’s price performance over the last twelve months, compared to all stocks in our database.

The rating scale ranges from 1 (lowest) to 99 (highest).

Initial Public Offering (IPO) stocks will be assigned a “1” rating until the data from five trading sessions are available for calculation.

Group RS Rating: A measurement of a stock's industry group performance over the past six months utilizing A+ to E scale. All 197 groups are combined and distributed into 13 rating groupings: 12 of near equal size and one comprised of industry groups with "E".

SMR Rating: A proprietary rating pioneered by Investor's Business Daily to help investors identify companies with superior Sales Growth, Profit Margins, and Return on Equity ratios.

The SMR Rating data item is one of five Investor's Business Daily SmartSelect® Corporate Ratings. This data item combines into one simple "A" to "E" rating system, four fundamental factors used by analysts:

Accumulation/Distribution Rating (Acc/Dis Rating): Exclusive rating in Investor's Business Daily. One of the IBD SmartSelect® Corporate Ratings, it tracks the relative degree of institutional buying (accumulation) and selling (distribution) in a particular stock over the last 13 weeks. Updated daily, stocks are rated on an A+ to E scale.

A = Heavy buying
B = Moderate buying
C = Equal amount of buying and selling
D = Moderate selling
E = Heavy selling

The rating is enhanced by "+" and "-" signs to show additional detail on institutional activity; a "B+" indicates greater accumulation than a "B" rating, whereas a "B-" indicates less accumulation than a "B" rating, and so on.
Above are the 6 rankings IBD uses, and have allowed me to know when is a good time to buy and sell a stock. Although IBD charges an annual fee it is much cheaper and accurate, in my opinion, than many other quantitative analysis sites I've come across.

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dee said...

I like your site. I want to trade options more and have tried over the last year but keep losing money. Most of my "play money is gone"I tried to subscribe to options sites but still lose out.I'm either chasing the trade or left holding the bag. Any advice? Just looking for profitable trade.

Option Maestro said...

Options are very risky and most of the time they expire dead (meaning you lose 100% of the money). Have you ever tried selling options?

Anonymous said...

Hi, I follow your research in alpha they are very goods !

i have a problem with your method, can you tell where is in google finance "evaluate stocks" i cant find this ...

thanks !


Option Maestro said...

Google is the stock I used for an example on the IBD website, sorry for any confusion.

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