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Golden Rule #4 - Share Price Sentiment

Once a fundamentally superior stock has been identified then investors may wish to focus on stocks with a positive share price trend.

To assist investors with their exit and re-entry strategies based on their sensitivity to drawdowns, Stock Doctor has developed two technical price trend indicators SDMAX and SD30TSR. Both of these indicators can be accessed within the companies 9 Golden Rules screen and in the Advanced Charting Tool.

Percentage shorted

You can chart the percentage of shares a company has shorted against it under Golden Rule 4 to help monitor the level of short-interest in the business and whether that is contributing to current price sentiment. When there is a spike in the amount of short interest and/or there is a consistent high level of short interest, it can mean negative sentiment exists and that the stock may be in for a period of extreme volatility.

 

Which Stock Doctor technical price trend indicator to use will depend on how sensitive you are to significant price declines: 

SDMAX - Stock Doctor 4/13-week High/Low Moving Average crossover (weekly) indicator is suitable for those who are very sensitive to price declines and are therefore willing to be very active in the management of their portfolio. This indicator is based on the high and low of a 4 week (fast) and 13 week (slow) simple moving averages. Click here to learn more.

SD30TSR - Stock Doctor Trailing Stop loss 30% exit / 30% re-entry (daily) indicator is suitable for those that are moderately sensitive to price declines but are still prepared to let the stock price fall 30% to avoid churn. Click here to learn more.

Be wary of stocks whose share prices are historically volatile, under-performing its peers, sector or indices, or trending downwards. A positive trend indicates the markets appreciation for the stock, its business and the industry it is in.

Golden Rule #4 - Share price sentiment can play an important role in portfolio construction because a negative share price trend can signal underlying fundamental problems within the company.

It is important to note that share price sentiment plays no role in the decision-making process of a value investor. However, looking at stocks on value only can be a highly risk strategy due to the potential for “value” traps.

Income seeking investors, particularly volatility averse investors, prefer stable share prices with minimal spikes or shifts in price. Dividend maximisers however don't mind volatility as a decline in price often makes the dividend yield more attractive.

Notwithstanding the above, should a Star Stock’s share price fall, however remain fundamentally sound with its active risks remain under control, then a declining price may represent an opportunity to acquire the business at a cheaper level.

 What does share price sentiment show us?

It demonstrates whether the market likes:

  • the business
  • the company’s current operations; and
  • the industry the company operates in

Share price sentiment can help identify previous issues or good news the company has had that may warrant further investigation.

 

** This document has been prepared by Lincoln Indicators Pty Limited ABN 23 006 715 573, as Corporate Authorised Representative of Lincoln Financial Group Pty Ltd ABN 70 609 751 966, AFSL 483167. This document may contain general financial product advice. It has been prepared without taking account of your personal circumstances (including your objectives, financial situation or needs) and you should therefore consider its appropriateness in light of your objectives, financial situation and needs, before acting on it. You should read and consider our Disclaimer for more Important Information and our Financial Services Guide (FSG) which sets out key information about the services we provide. The Disclaimer and FSG are available at www.lincolnindicators.com.au .

The SD30TSR and SDMAX (Indicators) have been identified through a rigorous research process using historical price data against Star Stock selections. Each Indicator has its strengths and weaknesses. The information contained within the Indicators is for general information purposes only. It is not intended as investment advice, or as recommendations to buy, sell or hold a stock and is not to be relied upon as such. Past performance is not an indication of future returns.

Lincoln specifically disclaims any liability (whether based in contract, tort, strict liability or otherwise) for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of these Indicators.

Except as provided by consumer protection law, under no circumstances will Lincoln Indicators and its related companies be liable for any loss or damage caused by a client’s use or access to the Indicators. Contact our office should you required assistance on how to apply these indicators correctly.

Lincoln Financial Group Pty Ltd and its directors, employees and/or associates of these entities may hold interests in ASX listed companies. This position is disclosed within the Stock Doctor program and may change at any time without notice.

No part of this document may be copied, duplicated or reproduced without the permission of Lincoln Indicators Pty Ltd.
Copyright © 2018 Lincoln Indicators Pty Ltd

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