Wed 5 Jul 2006
Well, I didn’t get much data that was worthwhile from Trading Market’s PowerRatings system. Since the free tool that they have available allows you to plug in one by one the stocks you’re interested in, I ran 3 separate screens from another site to create a bag of stocks to use. I just picked a random stock screening site and used their built-in screen to search for the best Value stocks, best Growth stocks, and stocks with Recent Brokerage Upgrades.
Overall, I ended up with about 135 stocks to run through the PowerRatings system to see what kind of scores these stocks had, looking for 8’s, 9’s and 10’s to test for good long positions and looking for 1’s for a good short position. Of these, I got the following results:
PowerRating of 1 –> none
PowerRating of 2 –> 4 stocks
PowerRating of 3 –> 41 stocks
PowerRating of 4 –> 54 stocks
PowerRating of 5 –> 31 stocks
PowerRating of 6 –> 5 stocks
PowerRating above 7 –> none
These numbers are especially poor when you take into account that these stocks came from some stock screens that were supposedly filtering for stocks well positioned to grow as being the best-of-breed value (high PEG ratio) or growth (high 1, 2, and 3-5 EPS growth) stocks or have just been given a brokerage upgrade (within past week).
I will gladly share my spreadsheet with you upon request. I’ll try to find time this week to run through the screens again and see how the results go. I’ll also look at other screening tools and see what kind of results I can get.
The PowerRating system is less useful if it doesn’t give strong indicators, and that’s just what I’m seeing here–nothing really leaning strong towards buy or sell. But then again, thinking about the big picture that we’re seeing in the market, maybe PowerRating is doing what it’s supposed to: it’s showing that the market doesn’t have any really clear signs right now. If I were depending solely on PowerRatings, I’d be sitting out of the market earning money market interest levels on my funds just waiting for a buying opportunity to arise.
July 5th, 2006 at 8:22 pm
It’s not surprising that your screens did not reveal any particular PowerRatings… Value and Growth are medium to long term labels and have very little to do with the short term, which is what Power Ratings are supposed to be.
Think about it as the fact that most stocks in the short term tend to trade within a reasonable range. Only when they’re particularly oversold or overbought would they be ripe for a short-term trade… so the vast majority of stocks wouldn’t show up with high power ratings.
I would consider your results so far as a factor of the sample size… you probably need to be searching on a lot more securities to be able to find a few of the outliers with 1 or 7 Power Ratings…
July 5th, 2006 at 8:24 pm
Also, be conscious of the market size for each security. Both a small market cap or a low average volume for the security can cause volatility in the short term. I’m guessing that is one of the parameters in the Power Ratings — only look at stocks above $X in market cap and over $Y in average traded volume (either by dollar amount, number of shares, or both).