What Are the Stockscores?
Stockscores Foundation for the week ending August 26, 2019
In this week's issue:
In This Week’s Issue:
- Stockscores Market Minutes Video – Trading Headline Risk
- Stockscores Trader Training – What Are the Stockscores?
- Stockscores Feature Strategy – Stockscores Simple Weekly Canada
Stockscores Market Minutes – Trading Headline Risk
Market volatility has been hard to predict lately because the market can move quickly with a news headline or Trump tweet. This week, I discuss how I trade for headline risk in the short term. Then, I look at whether there is more to come with the stock market correction, do a Stockscores Market Scan in search of opportunities and look at the trade of the week on CARS
Click here to watch this week’s Market Minutes
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Commentary of the Week – What Are the Stockscores?
I developed the Stockscores indicators as a way to take the six important elements of chart patterns and put them into a pair of indicators. These indicators are available at Stockscores.com for almost all North American stocks and are very helpful for doing an assessment of whether a stock is worth considering.
Here's how the Stockscores indicators are calculated. Every stock, index or ETF that Stockscores covers is given 50 points to start. Points are added for positive chart characteristics and deducted for negatives.
For example, a break through price resistance is an indication that buyers are stronger than sellers, 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 seven-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. A score 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 at the price chart to see a confirming price pattern where the stock price is moving up through resistance from low price volatility.
I don't recommend buying a stock just because its Sentiment Stockscore is 60 or higher, but I do find that strong, market-beating stocks tend to have good 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 corner of the Stockscores.com website. 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.
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 with good Sentiment Stockscores or perhaps those that are just crossing above 60 today.
It's important to remember that the Stockscores indicators are applied to daily chart data and are not useful for a shorter time frame. A stock may give a good entry signal on the intraday chart suitable for day or swing trading despite having a weak Sentiment Stockscore.
What's powerful about the Stockscores is that they allow you to use a computer to filter the market, seeking out stocks with optimistic chart patterns. Stockscores.com has a Market Scan tool for filtering a large universe of stocks in search of stocks that meet the filter criteria you establish. It's hard for a computer to look for chart patterns the way a human can, but the Stockscore is helpful because it attaches points to the different elements of chart patterns.
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The Stockscores Simple Weekly strategy Market Scan seeks stocks with good long term, 3 year weekly charts. Before I run this scan, I set my default chart to the 3 year weekly by opening any chart and going in to the Charting tab to change the settings. By clicking on Create Chart, I have set a new default that will hold for all future charts.
I find this strategy is great for finding the longer term positions that you can build a portfolio around. Less time sensitive stocks that you can hold for months or even years.
I ran this scan on the Canadian market, here are two charts that show good potential:
V.SVI broke out of a low price volatility chart pattern last week with an increase in volume, indicating the stock is being accumulated. 7/10.
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T.PEGI made a move to all time highs a couple of weeks ago and has held up well since the breakout. 6.5/10.
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