In previous articles, we have explored several ways to analyze a company's financial data through Interactive Charts, including: comparing the Piotroski F-score of multiple companies, visualizing historical trends about a company’s income statement and balance sheet, identified undervalued companies based on price-to-sales valuations, generated customized series and constructed user-defined charts.
This article will conclude our discussion on Interactive Charts by exploring some other features within the interface. Some interesting features include incorporating technical indicators and drawings into the chart.
Brief recap on user-defined charts and the Predictability Chart
As discussed in Part 4, the Interactive Chart allows you to create customized series and save user-defined charts. Both features, especially the latter, allow you to go beyond the predefined charts and create additional charts to expand your analyses on companies.
Part 4 introduced a straightforward Predictability Chart that graphs a company’s per-share revenue and per-share EBITDA over the past 10 fiscal years. Figures 1.1 to 1.3 display the predictability charts for Wells Fargo & Co. (WFC, Financial), Apple Inc. (AAPL, Financial) and Amazon.com Inc. (AMZN, Financial), respectively.
Figure 1.1: Predictability Chart for Wells Fargo. Predict rank is 1-star.
Figure 1.2: Predictability Chart for Apple. Predict rank is 3-star, on watch.
Figure 1.3: Predictability Chart for Amazon. Predict rank is 5-star.
Based on the above three charts, we can clearly distinguish a predictable company from an unpredictable company. Wells Fargo, with volatile per-share revenues, has a one-star predictability rank. On the other hand, Amazon has a five-star predictability rank likely due to consistent per-share revenue growth, as indicated by a straight revenue per share trend line.
Note the red frame around Apple’s predictability rank. This indicates that the Cupertino electronics company’s predictability rank is on watch, i.e., Apple’s predictability rank of three stars can change upon new financial releases. As discussed in the research article, several business factors, including competition within the industry and economic cycles, can alter the business’s previous tracks. This can lead to sharp changes in the company’s predictability rank. The red frame can signal that a predictable company may become an unpredictable company within the next few quarters.
Overview of technical indicators and incorporating them into Interactive Charts
As illustrated in the user manual, every available series, predefined or customized, are grouped into the following tabs: most popular, valuation & quality, income statement, balance sheet, cash flow statement, economic indicators, customized series and technical indicators. This section will focus on the final item on the above list, technical indicators. Figure 2 displays the available options within technical indicators.
Figure 2
You can graph up to three overlays and one indicator on the Interactive Chart. To overlay a series onto the chart, select one of the dropdown menus underneath Overlays, and click on the desired overlay. While a discussion of each of the overlays is beyond the scope of this user manual, we can still discuss how to incorporate the overlays on the Interactive Chart.
With technical indicators, we can conduct advanced analyses on a company stock. Two of the most common stock analyses involve simple moving averages (SMAs) and the relative strength index (RSI). Both momentum indicators can give further analyses on whether the stock is overvalued or undervalued.
The simple moving average computes the arithmetic average of the company’s stock price during a specific time period, usually 50 trading days for short-term averages or 200 trading days for long-term averages. When we graph these SMA trends, we can observe two trading patterns: the “golden cross” and the “death cross.” Figure 3 shows the “SMA Trends Chart” for Alphabet Inc. (GOOG, Financial) (GOOGL, Financial), which graphs the historical 10-year trend line for Google’s share price and the SMA for 50 trading days and 200 trading days.
Figure 3
As observed in Figure 3, Google exhibited a golden cross around May 2009. As expected, the online media company’s stock price increased about $100 per share throughout the rest of 2009. A stronger golden cross occurred during late 2015, increasing Google’s share price from about $540 to nearly a 10-year high of around $780 by the end of 2015. As Google’s short-term average SMA outperforms its long-term average SMA, Google’s share price is likely to increase in the upcoming months.
In Part 3, we discovered that biotech companies like Biogen Inc. (BIIB, Financial) and Gilead Sciences Inc. (GILD, Financial) moderately trade below their median price-sales valuation. This suggests that these companies have good value potential. To determine which of these companies likely has the strongest value potential, we can analyze the stock prices through momentum indicators. Figures 4.1 and 4.2 show the SMA trends chart for Biogen and Gilead Sciences, respectively.
Figure 4.1: SMA Trends Chart for Biogen
Figure 4.2: SMA Trends Chart for Gilead Sciences
Based on these two charts, Biogen likely has higher value potential then does Gilead Sciences. Even though Biogen exhibited a death cross during fourth quarter 2015, dropping its share price from $400 to $250, the Massachusetts based biotech company later struck a golden cross around August 2016. This suggests that Biogen’s stock price is likely to increase in the short term.
On the other hand, Gilead Sciences remains in a bearish situation as its long-term average SMA outperforms its short-term average SMA. The company’s stock price gradually declined since fourth quarter 2015, and the downward trend is expected to continue based on its SMA trading pattern.
Well-known technical analyst Welles Wilder measured the “speed and change of price movements” of a stock with the relative strength index, a momentum indicator that determines if a company stock has been overbought or oversold. Unlike the simple moving average, the RSI compares the magnitude of the gains and losses instead of simply looking at average price movements. The RSI ranges from 0 to 100, with values below 30 suggesting oversold companies while values above 70 suggesting overbought companies. Figure 5 shows Biogen’s RSI chart.
Figure 5
Conclusions and see also
The Interactive Chart contains other predefined charts as discussed in the user manual, including the Peter Lynch Chart with estimates chart. Unlike the standard Peter Lynch Chart, this chart also includes analyst estimates about future earnings. Figure 6 displays the Peter Lynch Chart with estimates for Wal-Mart Stores Inc. (WMT, Financial).
Figure 6
You will notice there are four squares in the upper-right corner of the interface. Known collectively as the drawing toolbox, these four buttons allow you to add text and shapes to the Interactive Chart.
- T: This feature allows you to add text to the chart.
- Square: This feature allows you to add squares and rectangles to the chart.
- Line: This feature allows you to add lines to the chart.
- Circle: This feature allows you to add circular shapes to the chart.
As displayed in Figure 7, the drawing toolbox allows you to highlight certain aspects of the chart, e.g., when the stock trades below its earnings line.
Figure 7: AAPL Peter-Lynch Chart with text and drawings
You can view the user manual on interactive charts by clicking the “PDF Tutorial” button in the upper-right corner, between the “Reset All” and “Video” buttons.
Although free members have limited access to Interactive Charts, most of the features require premium membership. Subsequent articles will discuss these features, including customized series and downloading to Excel. If you are not a premium member, we invite you to a free seven-day trial.
Disclosure: The author has no position in the stocks mentioned in this article.
