Have you heard these old
adages before: “ It takes money to make money” or “Born with a silver spoon
in his mouth”? The first expression applies to nearly all of us and the
second expression applies to very few of us.
Money management, the theme for this month’s issue of the PC Alamode,
presumes that one has the money to manage. There is obviously the need
to manage your week to week living expenses, but lets think beyond that
Saving a consistent portion of your weekly paycheck in a savings account
at first and then eventually moving to an IRA, Roth or other investment
program is in everyone’s best financial interest. And, the ultimate goal
should be to put a part of those savings into investments that will outgrow
inflation over a longer period of time. The next question is: “Do I use
Mutual Funds, Stocks, Bonds, Commodities, Real Estate or some other investment
The Financial SIG (Special
Group) began several
years ago with the intended purpose of helping Alamo PC members learn how
to use their computers to technically screen stock prices as a part of
the investment selection process. This was and continues to be an educational
process, not a stock selection group.
We have used videotapes, guest speakers, computer projections and our
own member presentations to further this education process.
Today’s stock market programs can build charts of stocks and other investment
vehicles, with a multitude of overlaid indicators, virtually instantly.
Although these indicators may involve complex mathematical formulas, their
interpretation and use are comparatively simple. The three most common
groups of indicators used in technical analysis are the oscillators, moving
averages and trading bands.
Oscillators may be defined in their simplest form as measurements
of internal strength over a period of time. Typically, the charted value
for an oscillator will range between certain fixed minimum and maximum
values, commonly being 0 and 100. This charted oscillating line will tend
to follow or lead (depending on the indicator used) the price of the equity
being studied. Directional changes that occur from below the 20% area or
above the 80% area are considered to be bullish or bearish respectively.
Indicators that fall into the oscillator group include the Relative Strength
Index, Stochastic Oscillator, William’s %R, Chaikin’s Volatility, Accumulation/Distribution
and many others.
A moving average, in its simplest form, is the sum of
a series of numbers divided by the number in the series. The two most common
averages are simple and exponential. The advantage of using an exponential
average rather than a simple one is that the exponential average will give
a quicker directional change when the equity price begins to reverse direction.
The MACD (Moving
is an oscillator derived from two or more moving averages. The MACD is
an indicator derived by subtracting a shorter moving average from a longer
moving average and then commonly creating a moving average from that line
to produce a two line indicator. This is an indicator that is quite responsive
to directional change of the equity being studied.
Trading bands are a third group of indicators that are
useful in assessing market direction for an equity. Bollanger Bands are
probably the most common example of a trading band. These bands represent
a two standard deviation (95% confidence) value above and below a simple
moving average of the equity being charted.
There are still more complex indicators, such as Linear Regression Trendlines
and Fibonacci Studies that can be used for the technical evaluation of
Though the math calculations for many of these indicators may be complex,
it takes nothing more than the push of a button in most charting programs
to create any of these indicators. Grouping two or three different types
of indicators together on a chart is the best way to use them. Then, one
should look for two or more of the indicators to give a similar signal
before accepting a projected price change in the equity. Metastock is an
example of a charting program that is able to perform all of these various
One of the ways that we study and use these various indicators is to
look at stock selections that were made two to four weeks before the meeting.
Then, by studying the price action of the equity and the related movement
of the indicators, we can best judge how to use these indicators in making
our own investment decisions.
About two years ago the Financial SIG began to look at technical analysis
programs that had the ability to make market selections based on a predetermined
set of technical criteria.
We have subsequently looked at and many members of the group have since
started to use one or more of three specific programs. In fact, each of
these three programs now has its own SIG. These programs are Monocle-II,
Library) and TC-2000.
These programs are only briefly described here because there will be separate
articles this month on each program.
Monocle-II is a mutual fund analysis program. The user can rank
funds by his/her own criteria or have the program make selections via the
Dynamic Asset Allocation routine built into the program. There is an Alpha
calculation found in this program (and in few others) that many of us have
found to be very effective in selecting mutual funds for short-term purchases.
Investors Reference Library is a stock select program that uses
a database of about 8,500 stocks and lets you pick and choose from about
200 criteria for searching this database. This program can screen for both
technical and fundamental and fundamental criteria. Typical screens are
performed in a matter of seconds.
TC-2000 is similar to the IRL program in that it can screen for
both technical and fundamental criteria.
The success of the Financial SIG comes especially from the sharing of
ideas and interpretations by the members of the SIG. This SIG meets on
the 3rd Saturday of the month from 9:00am-12:00 noon at the
AlamoPC Resource Center.