Market Edge - Jump Start (2024)

The core of the Market Edge web-site are the computer generated Long, Neutral and Avoid Opinions. These Opinions are formulated based on the stock's Power Rating. The Power Rating is a proprietary indicator comprised of seven non-correlated technical indicators, which are weighted so as to identify stocks that have either a strong or weak technical condition. The indicators include relative strength, volume, moving averages and momentum indicators.

Power Ratings vary between -60 and +100. Plus 60 and higher is regarded as Bullish and will trigger a Long Opinion, while readings of -27 and lower will generate an Avoid Opinion. As the Power Rating crosses zero from either side, a Neutral Opinion is generated. A Long rating is a recommendation to Buy. No action is recommended on stocks with a Neutral rating, and stocks with Avoid ratings may also be considered Short Sale candidates.

It is important to note whether the Power Rating is increasing or decreasing in value. A stock rated Long had a Power Rating greater than +60 at one time or the Long Opinion would never have been generated. As the Power Rating declines below +20, the technical condition of the stock is deteriorating and the odds are high that a Downgrade to Neutral will occur. Conversely, as the Power Rating of a stock is rated Avoid and is both gaining strength and Power Rating moves past -10 on its way to zero, it will be upgraded to Neutral.

Whenever the Opinion changes, it is labeled as either an Upgrade or Downgrade and the date and price are noted in the Opinion box.

The Recommendations are created by analyzing the status of the pertinent indicators which are included in the report. The recommendation may or may not change daily depending on the trading activity of the stock.

There are two key elements to Second Opinion. The first is the Opinion, which we have already covered. The second is the Score. Together they provide day to day guidance on how best to manage your stock investments.

The Score identifies the level of market risk (low, moderate or high) to a single number for interpretation purposes. Scores range from 0 to -4 for Longs, attempting to show levels of technical deterioration and guiding you to an exit point. Scores range from 0 to +4 for Avoids, which reflect levels of technical improvement. The table below summarizes the various combinations of Opinions and Scores and the proper interpretation.

The following interpretations assume that the stock with an Avoid Opinion has been sold short by thesubscriber.

Using Second Opinion To Improve Investing Results

The following back tested results used a combination of Second Opinion and the Score to trade the stocks that are incorporated in the S&P 100 Index (OEX) over a 5 year period from January 1, 2010 to December 31, 2014. Four tests were performed for the buy side. Positions were opened when a stock was upgraded to Long by Second Opinion and closed when the Score reached -1, -2, -3, and -4. The results are listed below.

The annualized percent return is the average annual return computed from the total profits and total capital required for the life of the test. The average annualized % return is calculated by taking the dollar amount of the largest transaction less any profits from prior transactions divided by the number of years in the test for each stock in the test. The percent of time invested represents the time spent in open positions.

Notice that the results are much better if the position is held until the Score reaches -3 or -4. Not only does the annualized percent return increase, but the time invested increases also. When the Score reaches the lower values, a greater degree of deterioration occurs before the position is exited. Of particular importance in this analysis is the % time invested. For example, opening positions when the Opinion was Upgraded to Long and closing when the Score reached -4 generated a 14.6% average annualized return while being invested only 51.18% of the time. Being fully invested in the S&P 100 Index during the same period would have generated an 11.85% annualized return.

A more aggressive approach when initiating positions can be accomplished by entering into positions using the Early Entry Long feature of the Stock Watch module. Create a list of stocks that you want to monitor and then access Early Entry Long to access those stocks which meet the Early Entry criteria.

The results of trading the same list of stocks over the same time period follows:

Once again you will notice that the lower the Score gets before exiting the position, the better the results and the percent time invested is 44% versus 100% for the S&P 100. Of course, past results are no guarantee of future performance.

For more information and user tips, consult the FAQ's on the home page and the Helppages accessible from any page.