The following is a brief glossary of technical analysis terms frequently referenced by the Sector Trends blog.
Accumulation/Distribution (A/D) Rating: The Accumulation/distribution rating is a proprietary MarketSmith measurement that "tracks the relative degree of institutional buying (accumulation) and selling (distribution) in a particular stock or industry group over the last 13 weeks. Updated daily, stocks stocks are rated on an A+ to E scale. This value is the rating calculated at the end of the prior week and is used as a basis of comparison." It may be helpful to think of it as a volume weighted average of upticks vs. downticks.
Bollinger Bands: Created by John Bollinger, these are bands that are plotted two standard deviations around a stock's moving average. When the bands tighten, or squeeze, this is an early indication price could make a sharp move, as periods of low volatility tend to beget periods of high volatility. A sharp increase in volatility can only be caused by a sharp increase or decrease in price.
Buy Point: See "Pivot Point".
Earnings Per Share (EPS): Is a proprietary MarketSmith rating; stocks are rated on a 1 to 99 scale (with 99 being best) comparing a company's earnings per share growth with all other domestically traded companies in their database, a stock with an EPS Rating of 80 has outperformed 80% of all domestically traded companies in their database of earnings. The EPS Rating calculation combines the company's most recent two quarters of earnings per share growth, with its three-year to five-year annual growth rate.
Earnings Per Share (EPS) Estimates: A composite of the "street" estimates for the fiscal year earnings. MarketSmith sources its estimate data from Thomson Financial.
Industry Group: The placement of similar stocks into a group. The blog references MarketSmith industry groups which were created by placing company's similar in major source of revenue, competitors, products, markets served, etc. into one of 197 groups.
Industry Group Rank: A proprietary MarketSmith ranking calculated by the least-squares curve fit of summed prices on certain stocks within an industry. Once that value is established, another calculation is performed using all companies in the group. Separate weightings are used for different time periods. Groups are ranked from 1 (best) to 197.
Institutional Sponsorship: The largest sources of demand for stocks are mutual funds and other institutional buyers; and the blog frequently references the increase in the number of institutions with reported positions in a given stock. Increasing sponsorship implies increasing demand.
MarketSmith: Is a subscription charting product of William O'Neil + Co. that provides both fundamental and technical information. It is the source of the vast majority of the data presented in the blog, and without exaggeration is, quite simply, indispensable.
Pivot point: A concept originally articulated by Jesse Livermore, a pivot point is the optimal buy point of a stock as it emerges from a sound and proper basing area or chart pattern and breaks out higher in price. This is the point of least resistance and has shown, through William J. O'Neil's research, to have the greatest chance of moving substantially higher based on its current and historical price and volume activity.
Relative Strength (RS): Is one of MarketSmith's proprietary ratings that measures each stock's price performance over a twelve-month period, compared to all other stocks in our database. To emphasize recent price performance, a 40% weighting is assigned to the most recent quarter (three months) results, with the remaining three quarters each receiving a 20% weighting in the calculation. Relative Strength Ratings value ranges from 1 to 99 (highest). A relative strength rating of 89 indicates the stock has outperformed 89% of all other stocks in the database. Initial Public Offering (IPO) stocks are temporarily assigned a "1" rating value until the data from five trading sessions are available for its initial calculation.
ROE: Presented as a percentage figure, return on equity is derived by dividing annual income (before extraordinary items, discontinued operations, cumulative accounting adjustments and non-recurring items) by an average of the latest fiscal year and the prior year's stockholders' equity. As an indicator of a company's financial performance, ROE measures how efficient a company is with its money. The biggest stock market winners historically showed an ROE of 17% to 50% before they made their huge gains.
Up/Down Volume Ratio: A ratio that is derived by dividing total volume on up days by the total volume on down days; a ratio greater than 1.0 implies positive demand for a stock. The 50 day ratio used by the blog is pulled from MarketSmith, the 25 day ratio is derived from a user created formula in TC2000.
Volatility Squeeze: See Bollinger Bands.