Signals Widget
The Signals widget answers two simple questions. Is this a stock worth your time and research? Is the timing good? When both answers are “Yes,” you know it is safe to go deeper in your research. Use this widget as your first screen.
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Journal Widget
The Journal widget displays the return of one of the three EPSMomentum investment strategies. Using it can help you fold one of those strategies into your portfolio.
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Profile Widget
The Profile widget provides important company information that can be used as part of your ongoing fundamental research and regular monitoring.
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Matrix Widget
The Matrix widget provides a company’s current and historic reported earnings and the thumbnail displays the most recent quarter’s earnings and sales growth. Use the widget to see the trend in a company’s reported numbers.
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PE Ratio Widget
The PE Ratio widget details a company’s current and Cash Back PE. Use it to compare these valuation measures to expected growth rates as part of your fundamental research.
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PEAD Widget
The PEAD widget uses predictive analytics to help you see the statistically most likely path a stock will take after it reports earnings.
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Revisions Widget
The Revisions widget is a leading indicator that helps you see how analysts expect a company’s earnings to change. Use it as part of your fundamental research to build watch lists or to monitor positions.
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Timing Widget
The Timing widget helps you see the potential risk and reward in a given stock by quantifying its volatility. Use it to help you determine entry price, position size, and any stop loss.
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Skew Slope Widget
The Skew Slope widget uses option volatility data to identify market sentiment and demonstrates whether option premium is rich or attractive. This predictive tool can help you identify stock entry points and option trading strategies.
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Earnings Cycle Widget
The Earnings Cycle widget is a visual tool based on data in the Matrix and Revision widgets. It illustrates whether earnings are improving or deteriorating. Use it to gain quick insight into the trajectory and velocity of changes in earnings.
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Financials Widget
The Financials widget offers a snapshot of changes in a company’s balance sheet, income statement, and cash flow statement over the last few years. Use it to quickly identify long-term trends and periodic anomalies in them.
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Dollar Flow Widget
The Dollar Flow widget is a technical indicator that shows the money flow into and out of a stock. It offers a visual display of accumulation, consolidation, and distribution. Use it to identify overbought and oversold conditions.
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Dark Short Widget
The Dark Short widget graphs the volume of market maker short sales relative to total volume and provides signals that often precede an uptrend in a stock. Use it as one of your screens to find potential breakouts.
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Sectors Widget
The Sectors widget illustrates relative performance of the 11 S&P sectors using a number of different criteria. Use it to help you select stocks or sector ETFs exhibiting strength.
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Chart Widget
The Chart widget displays many of our proprietary momentum signals in a single visual. It is a highly customizable tool that allows you to include the types of technical studies that suit your trading/investment style.
LEARN MORESignals Widget
The Signals widget answers two simple questions. Is this a stock worth your time and research? Is the timing good? When both answers are “Yes,” you know it is safe to go deeper in your research. Use this widget as your first screen.
Earnings Momentum (EM) and Timing Momentum (TM) are highlighted in the widget and provide a straightforward “Yes” or “No” answer to each question. The answers are color-coded for clarity. Green means the signal is positive. Red means the signal is negative.
The S&P trend (SPY) box at the bottom of the Signals widget shows the current trend of the 5-day and 20-day moving averages of the overall market. This is for information. It is not a component of EM Score or TM Score. It is intended only to highlight any current correlation between a stock and the stock market.
Note: We use the SPDR® S&P 500 ETF (SPY) as our proxy for the market. SPDR® is a registered trademark of Standard & Poor's Financial Services, LLC.
Here is how to use the components of EM and TM.
Components of EM
Earnings Momentum tells you if a company's reported sales and earnings are on a rapidly increasing trajectory. Reporting higher sales or earnings isn't enough to always trigger a “Yes.” We assign a numeric score to a company's earnings, taking into account earning momentum and various growth factors like acceleration as they change from quarter to quarter.
1)
EM Score measures the trajectory, momentum and acceleration of change in a company's sales and earnings. We recalculate EM Score with every quarterly report. The higher the EM score, the “growthier” the company's sales and earnings.
2)
EM Bias reflects changes during the quarter in institutional holdings and sentiment among sell-side analysts. EM Bias is for information only. It does not impact EM Score. You may use it as a leading indicator as changes in institutional holdings and analyst recommendations often precede price changes.
A Red Flag: Debt level indicator may appear below EM Bias. This is also an informational signal that does not impact EM Score. It appears only when a company's debt exceeds 100% of equity.
Components of TM
Timing Momentum tells you if a stock's primary price trend is positive or negative. It generates a signal only when it reaches a binary trigger point. That trigger point is always above zero and until it is reached, it has no predictive value.
1)
Timing Momentum Score compares a series of long-term, intermediate-term, and short-term moving averages to quantify the attractiveness of a stock's price movement. The score has no set numeric boundary. It is significant only when the trigger point is reached and an upward pointing green arrow is displayed. Until this point, a downward pointing red arrow is present. Avoid stocks with negative (red) timing momentum.
2)
TM Bias is a short-term version of timing momentum. It is a leading indicator of the Timing Momentum Score. This arrow may turn green before the Timing Momentum Score arrow changes. TM Bias is highly sensitive. Watch it carefully as it is a very good predictor of potential reversals. But do not act on it alone.
3)
Market Score measures a stock's comparable performance to the overall market (SPY) over a recent short time frame. It is used to evaluate the potential durability of a predicted move.
Note: All three arrows must be in the green upwardly pointing position for the Timing Momentum box to display the positive “Now” signal. Avoid stocks when the display reads “Not Now”.
DATA POINTS:
EARNINGS MOMENTUM
EM Scores are based on quarterly non-GAAP year-over-year changes and are presented as numerical values. These values are raw scores. While they are not normalized, ranked into percentiles, or scaled relative to other stocks, they are adjusted for seasonal trends.
The formula to calculate EM Score gives a slightly higher weighting to reported revenue than reported earnings-per-share. This is because sales is an objective metric uninfluenced by one-time accounting adjustments and gains or losses that result from recognizing otherwise extraordinary items.
Our model attributes a high EM Score to companies that have revenue and earnings growth ranging from 17% to 20%. It attributes a negative EM Score to companies that have reported previous negative quarters, have decelerating earnings, or that report an abnormally weak quarter compared with the same prior-year period.
Revenue and earnings-per-share data are continually analyzed using the most recent twelve fiscal quarters. This information populates a predictive statistical model against which current-quarter data is compared to arrive at the most recent EM Score.
The Earnings Momentum Score rests on a continuum from -50 to +50 based on the strength of a company's current earnings and revenue growth. A score above +20 indicates that sales and earnings momentum are accelerating and signals that the stock should be considered for investment.
An EM Score at or above 20 does not trigger a green signal. The EPSMomentum algorithm produces green signals only when each of the factors it measures all reach their optimal score. The score must be above 20 for the signal to be positive.
The specific data triggers that produce a green signals are:
1)
EM Score must be above 20;
2)
TM Score must be above 0;
3)
TM Bias must be above 0;
4)
Market Score must also be above 0.
EM BIAS
EM Bias reflects intra-quarter changes in institutional holdings and perception among sell-side analysts. We use EM Bias simply to gauge sentiment before and after our model identifies fundamental and timing opportunities in a particular stock. Changes in the two components of EM Bias are often a precursor to changes in price (up or down).
TIMING MOMENTUM
Timing Momentum Score begins with the creation of trend coefficients based on the delta between a stock's 252-day high and two predefined price points: one at 90% of the 252-day high; the other at 80% of it.
The formula then quantifies the exterior bands of two rolling price windows: a long-term trend component, based on the first standard deviation of the stock's 60-week volatility pattern, the other based on the standard deviation of the stock's 20-day volatility pattern.
The formula then calculates an intermediate score based on the weighting of the 3-day moving average of this derived factor relative to the stock's 5-day moving average.
This score is enhanced by two additional (separate) calculations based on a raw comparison of the stock's price to its 5-day moving average and a comparison between its 5-week and 20-week moving averages. The sum of each of these factors is added to our proprietary Market Score to arrive at the final TM Score.
TM BIAS
TM Bias ranges from -10 to +10 and has no indicative value below 0. Only when TM Bias is positive can TM Score be positive.
Because the data used to calculate TM Bias is so short-term in nature, it can produce false signals.
TM Bias should not be used to signal a stock's reversal off of a bottom. But it can suggest a positive change in a stock's basic short-term trend and quantify its immediacy and timeliness. However, that signal must be confirmed by a positive TM Score in order for the EPSMomentum model to change from red to green.
Because TM Bias is the quotient of two very short-term moving averages, which give recent price moves much more weight than older data (resulting from price moves over the previous few days), it can change often and quickly.
The EPSMomentum model uses TM Bias to the extent that it can suggest an impending trend reversal. Long-term momentum cannot turn positive without TM Bias first turning positive.
MARKET SCORE
The Market Score quantifies the relative performance of the stock compared to the general stock market. We use the SPDR® S&P 500 ETF (SPY) as our proxy for the market. SPDR® is a registered trademark of Standard & Poor's Financial Services, LLC.
Our calculation uses a 10-Day Exponential Moving Average as a smoothing mechanism that gives recent activity more weight than older data.
Market Score oscillates around 0 with no set minimum or maximum. It quantifies a stock's relative strength compared to the broad stock market and a signal is generated only when it reaches a binary trigger point.
That trigger point is always above zero and until it is reached, a Market Score below zero has no predictive value other than to show that the stock is to be avoided. Only when the score is above 0 is there a Market Score buy signal.
KEY TAKEAWAYS
Use the Signals widget as your first screen to identify stocks on which you perform your own further, more extensive research. Avoid stocks that do not have both a positive (green) EM signal and TM signal.
Use informational components of both signals to identify potential reversals in stocks you own or that are on your watch list of potential stocks to buy.
Journal Widget
The Journal widget thumbnail displays the return of one of the three EPSMomentum investment strategies. Using it can help you fold one of those strategies into your portfolio.
There are three separate investment/trading strategies recorded in the Journal widget. The return of each strategy is based on an initial purchase when the following three criteria are met:
1)
At least 3, but no more than 45 days, have passed since the last earnings announcement date
2)
Both EM and TM signals are green
3)
The stock opens at a price above the closing price the day after earnings were announced
All three strategies are opened with an initial stop loss set at 7% of the purchase price.
Strategy 1 uses a Trailing Stop. The 7% stop price moves higher as the stock's market price rises.
Strategy 2 uses a Fixed Stop. The stop price remains at 7% below the original purchase price regardless of future price appreciation.
Strategy 3 uses an Adaptive Stop. The stop price resets at 7% below the opening price of the stock on the day its EM Score falls below 20.
DATA POINTS:
The EPSMomentum algorithm doesn't just create hypothetical investment signals, it is also programmed to use those signals to make automated investments. The investments are made using the logic-based approach outlined above allowing the machine to make all of the decisions uninfluenced by human intervention.
While the investments are made in a simulated account, the results that are produced are real. We document each investment that the EPSMomentum system buys and sells and maintain a journal that catalogs them.
The Journal widget displays the current total value of (theoretical) capital accumulated as a result of the algorithm's investment decisions, the investment return that the machine has generated, the number of trades it has executed, and the initial amount of capital the computer started with.
The Journal widget also reveals the largest single investment gain on any of the individual investments (“Max Win”) as well as the single largest loss incurred by the algorithm (“Max Loss”).
Each investment is chronicled from inception to completion (if applicable) for each strategy. For all investments the widget documents the profit or loss incurred (whether realized or unrealized), the date the investment was made and at what price, the date and price the investment was sold (if applicable), and the holding period in days, whether sold or still owned.
For investments that are still open the widget displays the current stop-loss price as well as the distance between the current price and the stop.
The specific data triggers that produce investment green signals are:
1)
EM Score must be above 20;
2)
TM Score must be above 0;
3)
TM Bias must be above 0;
4)
Market Score must also be above 0.
Investment positions are initiated programmatically. If the four data triggers are met, then four days after earnings are announced the EPSMomentum algorithm initiates a “buy” at the opening price of the subject stock.
If earnings are announced before the market opens, then that day is counted as day one. If earnings are announced after the market closes, then the next day is treated as day one.
All investments in the EPSMomentum “portfolio” are initiated with a $10,000 “paper” purchase. At the time the purchase is made the algorithm automatically sets and records an internal stop loss order to sell at a price equal to 93% of the opening investment price.
After a position has been established in Strategy 1, the system will automatically reset the same proportional stop loss based on the closing price of the stock every day. In this way, an initial risk of loss is automatically set at 7% and then if the stock increases in value over time, the algorithm locks in ever increasing downside limits to prevent those gains from being eroded.
KEY TAKEAWAYS
We present the Journal widget as a proof of concept and validation of the EPSMomentum model. When followed consistently and diligently as part of your investment research and trading strategy, the model may help you produce meaningful incremental returns over time when compared to a more passive buy-and-hold approach.
Note: The descriptions above are for informational purposes only. EPSMomentum is not a broker, dealer, or a registered investment advisor. Under no circumstances does the information above represent a recommendation to buy or sell a security. Nothing described in this widget is intended to be (nor does it constitute) investment advice.
Profile Widget
The Profile widget provides important company information that can be used as part of your ongoing fundamental research and regular monitoring.
There are three tabs on the widget.
1) Profile Tab
Provides a brief description of a company, the products it makes, the markets it serves, the distribution channels it utilizes, and the city where it's located. Also provided is information about the sector and industry group to which the company belongs. A link to the company's website is provided as well.
2) Transcripts Tab
The second tab includes written transcripts of the company's earnings calls and investment presentations.
3) Filings
Regulatory filings the company makes with the SEC are available in the third tab.
DATA POINTS
This is not a component of the EPSMomentum model or any of the signals it produces.
KEY TAKEAWAYS:
The Profile widget provides you with valuable information from various sources assembled in one convenient place. It should be an integral part of your ongoing fundamental research.
Matrix Widget
The Matrix widget details a company's earnings and sales and the most recent quarter's growth figures are displayed on the widget thumbnail. Earnings are on the left. Sales are on the right.
There are two toggle buttons at the top of the widget. The one on the right, headed by a future date (8/28/24 in this example) allows you to switch between a table and graph of earnings and sales forecasts for the next two quarters. The toggle on the left changes the Matrix between earnings and sales.
The Matrix widget is broken into two sections. Each displays the company's reported earnings and sales and our analysis of them.
1)
The top section focuses on quarterly changes.
2)
The bottom section looks at annual changes.
Top Section – Quarterly Changes
Quarterly results are compared on a year-over-year basis for the current year (Y) and previous two years (Y-1 and Y-2). Each quarter's results are compared to the same quarter in each of those years.
Columns hold quarterly data. Rows hold annual data. The column headed by a recent date (5/22/24 in this example) includes the most recent quarter. The previous three quarters (Q-1, Q-2, Q-3) in each year appear to the left. The Matrix calculates (A) the annual rate of change for each quarter and (B) the acceleration of those changes in the last two years.
The next row (beneath Acceleration) details the variance, or surprise, between reported numbers and analysts' consensus expectations for each quarter in the current year. It is the percent by which reported numbers beat (or missed) analysts' estimates for a given quarter.
The price change of the stock since the beginning of each quarter is presented below that.
The last item in the top section of the Matrix widget is the Earnings Momentum Score at the end of the last four quarters.
Bottom Section – Annual Changes
Annual earnings and sales results are analyzed in the second section of the Matrix widget. The percent change is used to calculate annual acceleration (or deceleration if negative) in each of the last four years.
DATA POINTS
The Matrix widget provides detailed insight into a company's sales and earnings momentum. Earnings numbers used are non-GAAP reported results. These “cash earnings” typically exclude irregular or non-cash expenses and are the preferred metrics of large institutional investors.
The Matrix widget analyzes sales and earnings numbers for the past 12 quarters.
Quarterly data is presented at the top of the widget in columns for the current and previous two years. Full year data is presented in columns at the bottom of the widget for the current and previous three years. These reported sales and earnings numbers are used to calculate the year-over-year growth rates for each respective quarter (compares numbers in the same column).
The color-coded table also displays the rate of acceleration (or deceleration) of earnings growth from one quarter to the next (compares numbers in the same row). This acceleration or deceleration is based on the change in a company's sales and earnings growth rate between quarters to help you visualize whether its earnings are growing (or shrinking) at a faster or slower pace than in previous quarters.
Earnings Surprise and Price Change are presented beneath the color-coded table.
Earnings Surprise is the difference between reported results and the mean estimate (for revenue and earnings) of all sell-side analysts. Price Change represents the percentage move the stock has made in each respective quarter from the day before earnings were announced until the close of the company's next fiscal quarter. For the current quarter, the change is calculated from the day before the last earnings announcement until the close of the last trading session.
Beneath this data we highlight, in yellow numbers in a yellow rectangle, quarterly changes to the company's EM Score. Below this are presented, in another color-coded table, the company's annual sales and earnings-per-share numbers, growth rate, and acceleration.
KEY TAKEAWAYS
The most important aspect of the Matrix widget is that it shows you the velocity of change in a company's earnings and sales. It tells you more than just the rate of growth, it shows you whether that growth is speeding up or slowing down.
The Matrix widget should be a primary source of your fundamental investment research since earnings trends are a key determinant of future stock price.
It presents sales and earnings data from the last four years in one easy to understand visual display and it is color-coded to help you clearly identify trends and patterns.
PE Ratio Widget
Displayed on the widget thumbnail are the current PE ratio and Cash Back PE. Cash Back PE is the number of years required for a stock to earn its current trading price.
There are four sets of data in this widget.
1)
The first set of data displays the current stock price and PE multiple. Forward PEs are based on one-year and two-year earnings estimates. The current Price to Earnings Growth ratio appears at the bottom of this first column.
2)
The second set of information includes price target forecasts (on the right) and the high, low, and mean earnings estimates (long-term growth rates) of analysts that cover the company (on the left). Cash Back PEs are calculated based on those long-term growth rates (left) and price targets (right).
3)
Estimated future earnings are summed to show how many years would be required for the company to earn its current per-share stock price (62 years in this example).
4)
Data at the bottom of the widget is from the last four quarters and displays profit margin, earnings yield, and PE ratio.
The chart in the middle of the widget provides a visual representation of all of this data to better help you identify trends and changes in them.
DATA POINTS
Cash Back PE was created, and is used exclusively, by EPSMomentum to compare a company's near-term price-earnings multiple to its long-term growth prospects. It does this by combining analytical methodologies of both fundamental equity analysis and traditional capital budgeting. As such, it can be thought of as a hybrid present value synthesis of a stock's long-term price-earnings ratio (PE Ratio) and price/earnings-to-growth-ratio (PEG Ratio).
The Cash Back PE formula tabulates available earnings growth projections of sell-side analysts (a polynomial-interpolated earnings growth assumption is used in the absence of such estimates) for each period going out five years. Beyond year five the model forecasts longer-term annual earnings out to year 30 using the historical annual average rate of inflation since 1920 (rounded to the closest integer). The sum of these represent a company's estimated accumulated earnings per share for the next 30 years. This calculation is made using the high estimates, low estimates, and the mean estimates of all published analyst forecasts.
Using these estimates and the stock's most recent trading price, the EPSMomentum Cash Back PE formula calculates the high, low, and mean number of years required for the stock to earn its current trading price (i.e., its theoretical payback period).
By combining two traditional valuation metrics (PE Ratio and PEG Ratio) and converting them into a long-term hybrid analytical tool allows investors to evaluate a stock's long-term growth prospects using a long-term gauge (traditional PE and PEG look out only 12 months). It also creates one powerful valuation tool capable of comparing disparate securities (e.g., stocks with similar PE and/or PEG Ratios but different long-term growth expectations) on an apples to apples basis.
KEY TAKEAWAYS
The PE Ratio widget provides you with the most relevant tool available for evaluating a company's intrinsic value. This powerful analytical tool defines present value in terms of a company's long-term earnings potential – not just the next 12 to 24 months.
The PE Ratio widget can be of tremendous help to you in your fundamental research because it provides a straightforward metric to align long-term growth projections with price.
PEAD Widget
The PEAD widget thumbnail highlights which drift the stock is in and how far away it is from its calculated mean price at the end of the quarter. PEAD means Post Earnings Announcement Drift.
There are three tabs at the top of the widget.
1) Current PEAD Tab
The first tab highlights the drift configuration the stock is currently in. Below the tab, we highlight the aggregate accuracy of every PEAD calculation the EPSMomentum algorithm has created from all available price data for this stock. In this example, 68% based on 47 quarters of data.
Our predictive price graph shows the high, low, and mean price where the stock is likely to be at the next earnings date. Red price dots are plotted from the beginning of the graph (the day before earnings are announced) to the close of the last trading session. The price plot is offered to illustrate the spread between the current stock price and the predicted mean price at the next earnings date.
All possible drift configurations (A, B, C, D) are presented below the current PEAD. Each drift is calculated based on a stock's price movement beginning with the day before or the day after earnings are announced depending on the timing of the actual announcement (before the market opens, or BMO or after the market closes, or AMC).
Each PEAD configuration highlights the mean rate of return experienced for that specific drift, the accuracy of our prediction, and the number of quarters (out of the total) the drift was confirmed.
The current drift (in this example, Positive Under-reaction) is confirmed below the four PEAD graphs. Also presented are the stock's overnight price movement (in percentage terms) after earnings are announced but before the stock opens for trading (O/N). The same calculation is made for the opening and closing price change on the next trading day (ED O/C).
Also highlighted here are the date of the last earnings announcement (ED) and the number of days since then. The date and number of days until the next earnings announcement are provided directly below that. The price plot illustrated in the main PEAD graph is confirmed below these numbers.
The Spread to drift is presented on a dollar basis and a percentage basis. At the bottom of the widget, the spread relative to the overall market (adjusted to remove the return of SPY) is presented. To see this relative spread graphically, click the toggle button in the bottom right corner.
2) Accuracy & History Tab
The Accuracy and history tab is a straightforward ledger of all PEAD calculations made by the EPSMomentum algorithm. It maintains a running account of the current prediction and compares the return of our forecast (to date) with the stock's actual price.
Also memorialized is the accuracy of each previous price prediction. The tab displays the success ratio of those predictions at 7 days after ED, 20 days after ED, and at the end of the prediction cycle (the next ED). It also records whether the stock price at the end of the prediction cycle was inside or outside the predicted PEAD band.
3) Data Current Drift Tab
The third tab provides an additional ledger to monitor price performance of the current PEAD prediction. Color coded in red or green, it compares the stock's actual and predicted return at key dates after ED. It is intended to more effectively communicate the accuracy of the current prediction.
DATA POINTS
We use company earnings announcements as the reference point from which to monitor price movement. Our custom calculation produces a price prediction model that augments and quantifies the traditional notion of PEAD within a narrow window around release dates.
The EPSMomentum algorithm generates a statistically accurate predicted average price path for a stock based on actual earnings, analysts' estimates, any surprise in the earnings announcement, and estimate revisions subsequent to the announcement. We present the results of our analysis in a straightforward color-coded manner that is simple to understand.
The EPSMomentum PEAD predictor considers an over-reaction (up or down) to be an indication that market participants may have considered the initial move after an earnings announcement to be abnormal. So prices immediately adjust in the opposite direction.
An under-reaction suggests that market participants may have considered the initial move to be insufficient based on an analysis of the earnings data. So prices immediately confirm the initial move.
In both cases, prices are likely to drift slowly over time in the direction of the initial move as any earnings surprise gets digested by institutional investors over the next few months following an earnings announcement.
We define four PEAD configurations as follows:
A - Positive Under-reaction
Stock rises in premarket trading when earnings are announced BMO or higher in after-hours trading when earnings are announced AMC and is higher in the next trading session.
B - Positive Over-reaction
Stock rises in premarket trading when earnings are announced BMO or higher in after-hours trading when earnings are announced AMC and is lower in the next trading session.
C - Negative Over-reaction
Stock declines in premarket trading when earnings are announced BMO or declines in after-hours trading when earnings are announced AMC and is higher in the next trading session.
D - Negative Under-reaction
Stock declines in premarket trading when earnings are announced BMO or declines in after-hours trading when earnings are announced AMC and is lower in the next trading session.
Our PEAD price predictor monitors the difference between a stock's trading price and its predicted average price based on the drift configuration identified soon after earnings are announced. That data is presented graphically and updated daily to highlight any spread between the stock's current price and the price predicted in the drift curve.
KEY TAKEAWAYS
Post earnings announcement drifts can be identified in most stocks. The EPSMomentum algorithm is designed to identify stocks where PEAD is more prevalent than others. The PEAD widget shows you the most likely price path for a given stock based on the drift configuration it identifies. Use the PEAD widget to inform your long-term investing or short-term trading based on that predicted drift.
Revisions Widget
The Revisions widget displays two important indicators, the percent change in a company's Revision Score and the change in that score since the last earnings announcement date.
There are three tabs on the Revision Score widget.
1) Summary Tab
This first tab offers another color coded visual to explain how analysts' recommendations have changed over time. The percent displayed (circled in this example) represents the change in the Revision Score calculated by the EPSMomentum algorithm based on changes in analysts' earnings and sales estimates.
2) RS2 Data Tab
The RS2 tab provides average estimates going out several periods for both sales and earnings. Our algorithm takes these raw numbers and calculates a proprietary Revision Score. The toggle buttons make it possible to see the raw data on an absolute basis and on a percentage change basis.
3) RS Data Tab
The RS Data tab aggregates average earnings estimates through to the company's next fiscal year and presents a color coded table of changes in our calculated Revision Score and the change in that score over time. The data circled in this example will always tie to the widget thumbnail and is the Summary tab.
DATA POINTS
Sell-side analysts may revise their opinions, outlooks, and earnings estimates at any time in the 90-day period between company earnings announcements. They can be infrequent and unannounced. Analyst revisions do not occur in concert or on a set or predictable timetable.
This unpredictability makes data analytics difficult. Nevertheless, earnings revisions can be one of the most influential factors affecting stock price movement.
The EPSMomentum algorithm records changes in estimates and quantifies them to produce a one-of-a-kind Revision Score. Our Revision Score reflects net positive or net negative changes to the mean earnings estimate of all published sell-side analysts.
The EPSMomentum algorithm does not average changes in analysts' estimate revisions. We score each change based on a proprietary algorithm to come up with an aggregate revision score. The percent change represents how our Revision Score has changed since the last ED.
Revision Score reflects the weight, scale, and number of changes to estimates. It measures the magnitude of changes analysts make to their forward earnings and sales estimates. A negative score reflects net deterioration. A positive score reflects a net increase. A 0 score signifies that any revisions published during the quarter have not changed the mean.
Positive earnings estimates alone do not create a positive percent change in the Revision Score. Earnings and sales must be in an accelerating state for the score to rise and the percent change to increase.
All the raw data in the summary is available in the RS and RS2 tabs, which offer insight into how sales and earnings estimates have changed since the last ED. The widget uses earnings and sales estimates compiled by Zack's Investment Research (RS) and FinnHub (RS2). Sales estimates (RSS) are aggregated by both providers.
The Revision Score provides a clear indication of how analysts' perception of a company – and its growth prospects – are evolving over time. A positive sloping Revision Score graph means that analysts' believe that a company's earnings are expected to rise.
KEY TAKEAWAYS
Changes in earnings estimates can be a leading indicator of future stock performance. You will gain the most benefit from the Revisions widget by monitoring the trend and pace of changes in the Revision Score. When both the score and the percent change are positive, you are likely to see upward movement in stock price over time.
Regularly monitoring the Revisions widget is important because to determine if the percent or score is improving or deteriorating. These can be leading indicators of potential reversals or act as confirmation of the current trend.
Note that Revision Score can be a potential precursor to changes in EM Score.
Timing Widget
The Timing widget thumbnail displays two vitally important pieces of information, the price volatility indicator for the past two days and the severity of potential loss that average true range price would inflict on a $10,000 investment.
The widget displays different data sets in six separate sections.
1) Timing Momentum
The first section details the current Timing Momentum of the stock (from the Signals Widget) and highlights how the stock's price has changed since the last earnings date (ED). Also included in this section is the ratio of daily and weekly volume to recent moving averages. Numbers above 1.0 signify greater than normal volatility.
2) Price Target
The second section repeats data in the PE Ratio widget and shows the high, low, and median price target of analysts that follow the stock.
3) Price Range
A price graph displaying the 30-day and 52-week range of the stock show where the average true range over the last two trading sessions rests on the continuum between the stock's high and low prices. Also displayed is the price of the stock on ED and at the close of the last trading session.
4) Position Calculator
The position calculator shows the number of full shares a $10,000 investment could purchase and highlights the stock's two-day average true range and the potential loss that could be created on a $10,000 investment if the stock fell to that level.
5) Stop Loss Guide
The STOP Position section calculates the prices the stock would reach at its one-day average true range, its two-day average true range, its one-week average true range, and if it fell two standard deviations from its mean average true range. This section calculates the percent change each would represent from the current price as well as the change in dollars per share. It also calculates the total loss on a $10,000 investment.
6) Timing Momentum Trend
The last section offers the five-day trend of the stock's TM Score, TM Bias, and Market Score
DATA POINTS
On the right side of the widget is a visual representation of the stock's one-year price movement and predicted price volatility. 30-day and 52-week highs and lows are obvious on the graph and represent extreme and intermediate reference points on the continuum. Also obvious is the last price of the stock, which is distinguished by a red dot. The key reference point on the chart is the white dot signifying the closing price of the stock the day of the company's last earnings announcement.
Each of the potential prices on the right side of the graph are calculated from this reference price based on the average true range of the stock and the second standard deviation of the stock's statistically predicted volatility.
EPSMomentum calculates an investment allocation in the exact same proportion that the algorithm uses to make automatic investments in the Journal widget. Based on an assumed $10,000 investment the calculator produces a quotient of the number of shares the algorithm would buy of this particular stock.
The calculator also produces a default stop loss price based on a common multiple of the average true range (ATR) of the stock. The EPSMomentum algorithm calculates the stop at two times the daily ATR. That price is then used to calculate the maximum loss that would be incurred if the stock were to be purchased at the current price and then fell to the stop price and sold.
EPSMomentum calculates various other scenarios and offers other stop loss levels. We calculate various prices at which a stop loss order might be placed and display the potential loss for each price in terms of percentage, share price points, and total actual dollars based on the quantity of shares calculated in the Position Calculator section of the widget.
The stop loss prices calculated expand upon the default stop loss price (of the Journal widget). The ramifications of more severe volatility and less severe volatility are displayed. As a starting point, we repeat the default stop loss setting (2 ATR). Above that, is displayed the effect of a stop loss set at the daily average true range (1 ATR). We also display (below the default) the price at the weekly ATR. Below that we display the stop loss price using the second standard deviation of the stock's statistically predicted volatility.
KEY TAKEAWAYS
The Timing widget is intended to help you time your entry, size your investment, understand the current risk, and set an appropriate stop loss consistent with your investment style and risk tolerance. Use the widget to initiate investments and then monitor them.
Use this widget to help tailor your stop losses based on a given stock's unique volatility characteristics. Stocks with higher volatility may warrant tighter stops. Less volatile stocks might justify a lower stop.
Note: The descriptions above are for informational purposes only. EPSMomentum is not a broker, dealer, or a registered investment advisor. Under no circumstances does the information above represent a recommendation to buy or sell a security. Nothing described in this widget is intended to be (nor does it constitute) investment advice.
Skew Slope Widget
The Skew Slope widget displays two important pieces of information, the first is the change in the skew slope. The second is change in implied volatility.
The widget uses option pricing data to define short-term market sentiment. There are three sections in the Skew Slope widget.
1) Data Table
The first section of the Skew Slope widget provides a color coded table detailing the raw data plotted in the graphs in the other two sections. Data displayed in each of the five columns is specific to the time frame selected by clicking on one of the four radio buttons. A red, yellow, or green arrow identifies whether the environment is bearish, neutral, or bullish.
2) Skew Slope Signal Graph
The skew slope signal graph plots a stock's price, the put/call option skew, and the slope of that skew over color coded bands that define market sentiment on a vertical continuum from very bearish to very bullish depending on where the skew slope resides within those bands.
3) Volatility Graph
The volatility graph plots the relationship of implied option volatility to a stock's historical volatility to determine whether options on the underlying stock are expensive or cheap.
DATA POINTS
Skew is determined by the price of the 10% out-of-the-money put option relative to the price of the 10% out-of-the-money call option for a given expiration (see the Data Table in the widget).
Skew is positive when the implied volatility of the call is higher than the put. This is considered bullish. Skew is negative when the implied volatility of the put is higher than the call. This is considered bearish.
Skew slope is the regression line of the skew's moving average. The EPSMomentum algorithm calculates a 5-day slope and a 10-day slope to create a signaling skew slope. The direction of the skew slope is determined by the difference between the 5-day slope and a 10-day slope. A rising slope is bearish. A declining slope is bullish.
Signals are created at extremes within the red and green bands. Extremes are identified by the percentile ranking of the skew and its kurtosis (i.e., how many standard deviations it is from the mean) relative to the one year moving average.
NOTE: it is recommended that you view this entire video for a more detailed explanation.
KEY TAKEAWAYS
The Skew Slope widget is one of the most informative tools an options trader can use. It gives you vivid visual clues to identify potential price changes and arms you with the tools to understand the relationship between stock price, option skew, and implied volatility to better inform a given option strategy and specific trade setup.
Use the following grid as your guide.
Note: The descriptions above are for informational purposes only. EPSMomentum is not a broker, dealer, or a registered investment advisor. Under no circumstances does the information above represent a recommendation to buy or sell a security. Nothing described in this widget is intended to be (nor does it constitute) investment advice.
Earnings Cycle Widget
The Earnings Cycle widget thumbnail displays which earnings phase a stock is in. The widget is a very straightforward illustration of how a company's earnings have changed over the last several earnings announcements and how analysts have revised their earnings estimates.
There are two axes in the Earnings Cycle widget, Earnings Momentum and Revision Score. The axes define four quadrants within the widget.
1) Growth Trap
Companies stuck in a growth trap may be profitable and growing, but not at a rate sufficient to excite analysts. These companies are often rated “Hold” by some analysts. While other analysts may have a “Buy” rating on these companies, their sales and earnings may lack the acceleration necessary to earn a higher EM Score from our algorithm. In other cases, a company may have high sales and earnings momentum, yet be unable to garner the attention of analysts.
2) Neglected
Companies in this quadrant typically have negative earnings momentum and are often overlooked by analysts. Our algorithm will generally assign these companies a low EM Score and low Revision Score.
3) Turn Around
Companies in a rebuilding phase or emerging from an earnings slump will typically end up in this quadrant. They may have the attention of analysts, who begin to revise their estimates higher, but those expectations may not yet be reflected in actual results. These companies may hold out promise without yet delivering the type of accelerating earnings growth necessary to gain a high EM Score.
4) EPS Momentum
Dynamic companies with rapidly growing sales and earnings typically get the attention of analysts. As they revise their estimates higher, the EPSMomentum algorithm detects this and quantifies it into higher Revision Scores. Likewise the algorithm identifies companies that demonstrate an ability to regularly surprise investors with higher than expected sales and earnings. This translates into higher EM Scores.
DATA POINTS
The data driving the Earnings Cycle widget comes directly from the Matrix widget and the Revisions widget.
KEY TAKEAWAYS
The Earnings Cycle widget provides a vivid picture of the trend of a company's EM Score and Revision Score and can offer a visual clue when either of them starts to deteriorate. The widget can be used to monitor current holdings and to identify companies that should be added to a watchlist.
Financials Widget
The Financials widget thumbnail shows both the quarterly and annual trend in a company's balance sheet, income statement, and cash flow.
The widget offers a quick snapshot of a company's current and past financial statements. The two tabs at the top let you see the numbers as graphs or in tables. On the right a toggle button switches from quarterly data to annual numbers.
Mousing over any of the graphs brings up a small table highlighting specific reported numbers for the current or prior periods.
DATA POINTS
This is not a component of the EPSMomentum model or any of the signals it produces. Data comes from company regulatory filings.
KEY TAKEAWAYS
The Financials widget provides a vivid picture of the trend of a company's financial health. Augmenting the graphics are the actual reported numbers presented in tabular form. Use the widget as part of your fundamental research.
Dollar Flow Widget
The Dollar Flow widget thumbnail reveals whether money flow is either strong or weak. The absolute flow metric can be a leading indicator of price reversals and confirmation of a more durable trend.
The widget plots the 12-month history of a stock's price imposed over a chart of money flow during the same period.
The widget produces values for different money flow trends and then calculates the slopes of those trends. Positive changes in slope may indicate that prices are likely to move higher, while negative changes in the trendline can suggest prices are about to fall.
The widget displays dollar flow as either a positive or negative decimal number and produces both a 1-day change and a 5-day change to identify any variance in dollar flow trend. That trend is displayed in the form of a 10-day slope.
DATA POINTS
Our proprietary methodology for calculating money flow identifies buying and selling pressure above a normalized mean. The algorithm assigns specific statistical values to short-, intermediate-, and long-term volume-weighted prices in order to catch any abnormality over an exponential weighted moving average. Dollar flow value is plotted along a continuum between -10 and +10. A value above 0.0 indicates strong money flow. A dollar flow value below 0.0 signals weakness.
KEY TAKEAWAYS
Because changes in dollar flow trend can signal reversals or confirm an established trend, the widget should be used as part of regular position monitoring or to identify short-term trading opportunities.
Dark Short Widget
The Dark Short widget thumbnail shows if dark short sales and price trends are in sync with one another or if their paths are diverging. It highlights the most recent percentage of trading volume attributable to dark shorts and assigns a percentile score to that volume relative to the past year.
Dark shorts are reported by market makers when they facilitate large block trades off exchange. These “short sales” are viewed as a positive indicator because they represent purchases of institutional investors.
The widget displays a one-year stock price chart overlaid with a plot of the percentage of dark shorts relative to the stock's total trading volume. Also displayed is a graph of the slope of that percentage.
The top of the widget highlights the current values of the dark short percentage, its (DS) slope, the slope of the stock price chart, and the percentile rank of dark short volume.
DATA POINTS
The EPSMomentum algorithm compares the plot of dark short volume percentages for the past 12 months to determine both the slope of those percentages and their percentile rank over time.
The DS Slope and the stock price slope are in sync when they are moving in the same direction. When they move in opposite directions, they are divergent.
KEY TAKEAWAYS
Dark slope is a leading indicator of stock price and divergence is an early sign of a reversal. Look for stocks that are diverging to trade those reversals. Look for stocks that are in sync with a low DS percentile rank to potentially capture additional upside moves in a stock. Stocks with a high percentile rank may be candidates to sell if the percentile rank reverses toward the mean (suggesting institutional selling).
Sectors Widget
The Sectors widget is a very powerful tool to see the relative value of the various components of the S&P 500. The widget provides a single price chart of the 11 sector SPDR ETFs. The widget allows you to view them on a 15-day basis, a 3-month basis, and a full year basis.
The widget is divided into two displays. The top display illustrates the 11 charts separately. The bottom display groups all 11 sectors into one chart.
The widget can be manipulated to display the graphs based on their price relative to each of the others, relative to the S&P 500 (SPY), their price slope, their options volatility skew, and the dollars flowing into them.
DATA POINTS
Prices are normalized to present the sectors on a comparable basis.
KEY TAKEAWAYS
The Sectors widget can be used as part of your stock screening process to help you determine which industrial sectors to own based on different criteria important to your investment style or philosophy. The comparisons can help you determine which sectors to overweight or underweight or which ones to completely avoid.
The widget can be used to help you profit from periodic sector rotation or provide options traders with insight about market sentiment.
Chart Widget
The default chart in the Chart widget is automatically populated with Earnings Momentum Scores pinned to the date of each of a company’s earnings announcements. Mousing over the pins produces an additional display that includes some of the data affecting EM Score.
Also included in the default display are histograms of Timing Momentum, Timing Bias, and Market Score. Clicking the “Data” tab offers an additional five optional EPSMomentum-exclusive studies to populate the chart.
Charts can also be customized using the settings gear on their top right side. Further customization is available to include dozens of technical studies using the “Indicators” link on the top left. Price movement can be illustrated using a number of different chart styles by clicking on the candle icon next to the indicators button. The left side of the chart includes 12 drawing tools.
DATA POINTS
There are a number of possible ways to customize charts to illustrate data from almost every one of the other widgets on the EPSMomentum website.
KEY TAKEAWAYS
The Chart widget is intended for you to create a customized visual aid that provides you with the type of data you need to be successful.
Monitor
Set up watchlists or actual portfolios in the EPSMomentum Monitor widget. Monitor up to 200 stocks and sort them alphabetically or by Earning Momentum Score or Timing Momentum Score.
Powerful Screener
The EPSMomentum screener is one of the most powerful stock selection tools available. It offers more than 400 possible ways to filter searches. Choose up to 10 criteria from the EPSMomentum widgets to help you find winning investments.
