Bottom-Up Approach to Stock Selection Using AIQ
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1. This is often an indication of strong buying pressure and is usually followed by more upward price movements This is especially true if the current price is below the intermediate term exponentially smoothed average price Rules that fired for DH up signal By clicking the ER button on the toolbar of the DH chart you can see reasons for the buy signal On the day of the signal six rules fired The last three rules are shown in the figure displayed By plotting the indicators mentioned one can learn from these rules Volume Accumulation Percentage for DH was increasing see the chart STJM s Stochastic gave a recent buy signal as it fell below and then rose above the lower horizontal line Dai eee Due Emis Tage ore Hen cisis wafers alee te a SS aan Foes oe WE RETAILGE Oe pA 10 Tajal Geer ara ld ech serch Citai Barua Te aes ih i ee no yi th ff mM N npt 150 a4 80 3 1h 5B ih 42 174 O8 Chart of Retail pia General Merchandise WHE mam Taglar 68 New Users Guide The final step in our bottom up stock selection process is to make sure the stock is in an attractive industry group With the chart of DH displayed first check that the SP500 for the S amp P 500 Group Sector List is displayed in the List box if not click the arrow on the List box and select SP500 Then click the Explore up arrow on the toolbar to see a chart of the stock s industry group Shown is DH s i2. Pro Moreover building a User List from any of the tickers in your data base is a simple task For instructions on how to create a simple one level list in Data Manager see Other User Created Lists in Chapter II of your User Manual Once a list is created viewing a chart of any ticker in that list becomes simply a matter of clicking on the ticker s name in the Explore Window of Charts How to explore a User List of stocks After creating a User List of stocks you are interested in you can easily view charts of tickers in the list using TradingExpert s Explore Window To use the Explore Window do the following 1 Open the Charts application 2 In the List Box near the right end of the toolbar select the name of the User List that you have created and want to explore The name of this list must appear in the List Box 3 Press the Enter key The Control Panel listing technical indicators on the right side of the Charts screen will be replaced with the Explore Window The Explore Window will display your User List just as it was created in Data Manager The name that you assigned to the User List will appear at the top of the window with Daily Selection Criteria tab of the Global Properties dialog box 4 the tickers listed below in alphabetical order To view any ticker in this list simply click on its ticker symbol in the Explore Window Hold down the Ctrl key to select multiple tickers to view You can easily and quic
3. Section IV Bottom Up Approach to Stock Selection Using AIQ Reports In This Section Building a User List of fundamentally attractive stocks 64 How to explore a User List of stocks 64 How to run reports on a User List 65 Using AIQ reports to flag stocks of interest 66 Bottom up approach example using Weighted Action List 66 Other screening reports 70 Section IV Bottom Up Stock Selection 63 Note There is no limit to the number of User Lists you can create G4 New Users Guide With TradingExpert s group sector capabilities much of the focus is on top down strategies which were discussed in Section III TradingExpert also provides a powerful bottom up approach to stock selection With a bottom up strategy analysis begins with individual stocks and moves to their industry groups and sectors Building a User List of fundamentally attractive stocks AIQ users who combine fundamental information with technical analysis often use a bottom up approach Stocks are first selected using fundamental values and then TradingExpert is used to time the buy and sell points Some AIQ users prefer to trade only top rated Value Line stocks or stocks highlighted in Jnvestor s Business Daily using AIQ for timing With this approach a User List containing fundamentally attractive stocks is first created and then AIQ s reports are run on this list As you will learn the User List is a powerful feature of AIQ TradingExpert
4. ck data base and develop lists of technically attractive stocks include Accumulation Distribution Moving Average Crossover Upside and Downside New Highs New Lows Price Change Upside and Downside Price Gap Price Volume Divergence Relative Strength Strong and Weak Trendline Breakout Volume Spikes Volume Trend By experimenting with these reports you can develop your own style of bottom up investing
5. kly view all the tickers in your User List How to run reports on a User List After building a User List of fundamentally attractive stocks you can run the AIQ reports on the list to look for technically attractive conditions for timing entry points To run reports on your User List do the following 1 2 Open the Reports application With the right mouse button click on Stock Reports in the left pane of the Reports window The Global Properties dialog box which appears is used to set criteria for reports Click the tab labeled Daily Selection Criteria In the top section click the arrow on the text box next to the first item Stock The name of your User List should appear Click on the name and the User List will be displayed in the text box Click OK Finally generate reports as outlined in First Steps Section I of this Guide Section IV Bottom Up Stock Selection 65 66 New Users Guide Using AIQ reports to flag stocks of interest Although some AIQ users prefer to run reports only on User Lists of selected stocks other users prefer to run the reports on their entire data base of stocks A vast array of pre built reports are furnished with TradingExpert Pro including reports that filter your data base to find stocks with AIQ buy and sell signals strong relative strength high volume increasing Money Flow and positive negative divergences If a pre built report does not exist for a par
6. ndustry group Retail General Merchandise We see that the group s Money Flow indicator was weak in November and D ecember but in early 1998 Money Flow was advancing at the same time that the stock was drifting sideways A check of the weekly chart of the Retail General Merchandise group shows that the group was clearly in an uptrend Weekly charts give a better picture of the overall trend for the group To switch from a daily to weekly chart or vice versa click the W D button on the toolbar This tells us that the other stocks in the group are performing well and the group is in favor In our example the top rated stock on the Weighted Action List has passed our criteria This isn t always the case It may be that you don t like the chart pattern or the indicator readings of the stock Or the stock s industry group may not be attractive When that happens move to the next stock on the Weighted Action List and perform the same type of analysis Section IV Bottom Up Stock Selection 69 Reminder Detailed information about all TradingExpert reports can be found in your User Manual 70 New Users Guide Other screening reports Different types of investors have different styles of analysis Some are short term traders while others prefer to buy into trends TradingExpert for Windows provides a series of screening reports that fit the needs of both styles of investing Reports that may be used to screen your sto
7. rs on the Weighted Action List we know that sometime in the last ten days DH registered a buy signal that is confirmed by the Price Phase Indicator the indicator has turned in the direction of the signal In our example DH registered a 98 up signal on December 30 1997 elu t a 5 Peighied Acuan List joria Duly Upride Exper Rating p Coen Signal Fata 27 73 Delti An Lines ine Fart James Corp Southwest Adrdines Amd Cor UEU 5 a Abbati Labs National Med Estet Mead Carp Conga lec Black amp Decker Garp FPPEREEFEPEEPE Me a E E E Weighted Action List report for 1 12 98 is Chart of Dayton Hudson Corp DH Section IV Bottom Up Stock Selection 67 The Experts say that for Dayton Hudson Corp sometimes followed by an upward movement in the price of the equity The equity price has crossed and closed above the short term 18 exponentially smoothed average price This indicates a continuation of the current price movement but it is subject to whipsaws This is a weak bullish Print signal that could be followed by an upward movement in the equity price The 21 day stochastic has crossed the 20 line and is increasing accompanied by increasing volume accumulation This is a strong bullish indication that a price reversal to the upside is now taking place This type signal is often followed by further upward price movements Today s prices for this equity show a gap in price to the upside
8. ticular screening technique bottom up investors can use the Expert Design Studio to create their own report Whichever stock reports they prefer bottom up investors use TradingExpert to filter a list of stocks or a large stock data base and flag those stocks that deserve special attention In depth analysis is then performed on the flagged stocks and finally analysis is performed on the industry groups of these stocks Bottom up approach example using Weighted Action List Let s look at a bottom up approach example using the Weighted Action List A buy signal for the overall market was registered on January 12 1998 which was a good time to purchase stocks To see this Expert Rating display the AIQ Market Timing Chart DJIA for that day Shown is a Weighted Action List report run on that day This report lists those stocks with recent Expert Rating buy and sell signals that have been confirmed by the Price Phase Indicator The stocks with buy signals are listed in the order of their Positive Volume indicators highest values at the top Conversely stocks with sell signals are listed in the order of their Negative Volume indicators In our example the top rated upside stock from a data base of the S amp P 500 stocks is Dayton Hudson Corp DH Our analysis starts here With the Weighted Action List displayed on your screen you can double click on the DH ticker symbol and its chart will appear as shown Since the stock appea
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