Second Opinion
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Tom Ventresca MarketEdge.com |
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Before you buy or sell a stock, make sure you get a Second Opinion.
How often has this happened to you? Your broker calls with the 'hot stock' of the day or you hear an analyst talking about the next big winner on television. What should you do? Buy now, wait for a pullback or ask a friend what he thinks? Why not get an unbiased, computer generated opinion based on proven technical applications? Second Opinion, the core of the Market Edge web site (www.marketedge.com), gives you an inside look at a stock based on forty-one technical indicators and studies. In addition, Second Opinion generates Long (Buy), Neutral and Avoid opinions with specific comments and recommendations for over 4,300 stocks on a daily basis.
When using technical analysis, one should remember that seldom is it the case that a single indicator can consistently identify profitable buy/sell points. However, by combining several non-correlated technical indicators and studies into a computer model that generates buy and sell signals only when the majority of the indicators are in concert, favorable results can be achieved. That is exactly what Second Opinion does. Armed with Second Opinion, you will make investment decisions with an additional level of comfort.
When Second Opinion upgrades that 'hot stock' to a Long (Buy), you can rest assured that conditions are present that are essential for the stock's price to rise. But that is only half the story. Buying a stock is easy, but knowing when to sell can be the toughest part of the process. Second Opinion utilizes a unique scoring system to alert you to when to say "sayonara" long before the crowd gets the message.
Second Opinion computes a score on a daily basis for every stock in the Market Edge database. The score is a value between -4 and +4 and indicates whether the technical condition of the stock is improving or deteriorating. A score of -4 represents the worst extreme possible before the stock is downgraded to Avoid, while a score of +4 indicates the best level obtainable before the stock is upgraded to a Long (buy).
The following back tested results used the score to trade the stocks that are incorporated in the S&P 100 Index (OEX) over a 5-year period from 8/6/90 to 5/16/95. Four tests were performed. Positions were opened when a stock was upgraded to Long by Second Opinion. Positions were closed when the score reached -1, -2, -3, and -4. The results along with the annualized % return for each test are listed below.
| Strategy | Annualized % Return | %Time Invested |
| Buy on upgrade to Long-sell when the Score is -1 | 9.5% | 38.5% |
| Buy on upgrade to Long-sell when the Score is -2 | 15.2% | 46.2% |
| Buy on upgrade to Long-sell when the Score is -3 | 23.0% | 53.9% |
| Buy on upgrade to Long-sell when the Score is -4 | 25.1% | 56.5% |
| S&P 100 | 9.6% | 100.0% |
The annualized % 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 time invested represents the time spent in open positions.
The best results were achieved if the position was held until the score reached -3 or -4 signaling a greater degree of technical deterioration than when the score was only -1 or -2. Of particular importance in this analysis is the % time invested. Initiating positions when the Opinion was upgraded to Long (buy) and closing it when the score reached -3 generated a 23.0% average annualized return while being invested only 53.9% of the time. Holding on to the position until the score reached -4 produced an average annualized gain of 25.1% while being invested 56.5% of the time. Being 100% invested in the S&P 100 Index during the same period would have generated a 9.6% annualized return.
Tom Ventresca has been Computrade’s Director of Research since its inception in 1991. Prior to founding Computrade, Tom spent 12 years in the securities industry holding several positions including broker, sales manager, bond trader and market technician.
1947: Born-Pittsburgh, Pa.
1965-1969: Pennsylvania State University, BA degree.
1970-1978: Builder
1978-1990: Securities industry. Firms included First Southeastern, E.G. Francis, First Southeastern, Smith Barney and Oppenheimer.
1990-Present: Computrade Systems, Inc. Co-founder and Director of Research. Computrade is the developer of Market Edge, a comprehensive, computerized research web site, which is accessed by individuals, brokers and institutions throughout the world. As Director of Research, Tom writes Market Edge’s ‘Market Letter’ and ‘On The Edge’ plus the Dr. Market Edge series. Both the Market Letter and On The Edge provide in-depth market analysis based on three market timing models that he developed. Tom also has recently finished a new book, ‘Trade Like A Pro’ which is a systematic, disciplined approach to the stock market. Based on technical analysis, this book addresses five topics that he believes are critical to having success in the market. These subjects include market timing, stock selection, timing entry and exit points, protecting positions and money management.