Wednesday, August 16, 2006

Coaching Call Week 8

Today coach Rob and I reviewed Chapter 6: Intermarket Analysis. Although we did go through the chapter, the majority of our time was spent in a hands-on fashion, evaluating a couple of the stocks in my hotwatch folder. There are a number of free tools out there to aid evaluating a stock relative to it's sector, industry and competitors.

To figure out a stock's relative strength to a given sector we used's Sector Tracker . Sometimes it's a little tricky to discover which sector a stock belongs to because there isn't a clear standard. We ran into this difficulty with ORB however, by looking at ORB's competitors, the we figured that it's part of Aerospace & Defense. It's useful to know which sector a stock is part of not only to help evaluate its strength relative to the sector, but the sector's strength relative to other sectors and the market as a whole. It's yet another way to filter for best-of-breed stocks. Another benefit of drilling down into the sector is that you will likely come across another stock that you'd like to add to your hotwatch and/or trade instead of your original stock. After all, if the sector is performing well relative to the market, you may as well take a look at other stocks in that sector as it's not uncommon for the majority of stocks in a given sector to perform similarly.

After identifying the sector we used Yahoo! Finance to compare our stock (ORB) to the best of the sector.'s Sector Tracker allows us to drill down into the sector to see what stocks comprise the sector. We chose the top 3 performers and entered them on Yahoo! Finance's charting "vs" feature. Yahoo! Finance allows you to enter a number of stocks to compare to the current stock (enter multiple symbols by separating them with a comma). This gives you a pretty good picture of how your stock's relative strength to its competitors.

Another handy feature that provides is insider buying and selling. It seems to make sense that if the employees of a company are actually buying shares of their own company, then the people on the inside think the value of the stock value will increase. On the surface it seems like a good indicator, however most of the time buying won't show because the stocks are given to the employees as incentive or reward, but they don't show up as a purchase. However, when an employee sells, it's most certainly going to show on the insider tracking. Consequently, you're more likely to see sell orders than buy. Once more, this information requires some interpretation.

Combine all of the above with all of the technical analysis tools, volume, indicators and last week's lesson on institutional intent and you have quite a bit more evidence to support your position & outlook for a given stock. There are no guarantees, but filling in the picture with more information can either give us a higher probability or it can be enough for us to decide to simply walk away from a trade.

No doubt that it takes some time and energy to do all this research, but it is your money and if you aren't happy with part of the picture, why risk it? There are so many stocks to choose from, it seems like good practice to choose the best-of-the-best and to not bother with the rest. Don't you think it's worth that bit of extra effort on each trade?

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