2. Clusters S1,S2 and S3
3. Forecast 1-Month Return % Map
4. MDC Holdings
$. Provident Energy PVX
5. Electronic Arts ERTS
6. Regions Financial
For explanation on technology, methodology and terminology, see: http://www.technifundamentals.com/2010/07/explanation-page.html .
Fundamental analysis tells you what to buy while technical analyis tells you when to buy. With that in mind, we see if we can combine the two. Specifically, we want to examine the technicals of ValuEngine's fundamentals-based models. For this, we generate a SOM of the S&P500 and place on it the stocks picked by ValuEngine's Growth Model [they call it the Forecast Model]. I use the Growth Model because unlike the Valuation Model, it takes into account the short term 1-month forecast return %. In Image 2, you see the 22 stocks of the Growth Model on the SOM. I narrow down to only those stocks located in cluster 3, because their 1-month forecast return % are the highest [as shown in image 3]. And because their cluster statistics in terms of deviation from the entire data base are also the highest.
Now, a little explanation on the home-made technical indicator we are going to use to examine some of the stocks in cluster S3: My home-made indicator calls a Buy when the Red histogram is above zero AND Tushar Chande's Q_Stick [top window Blue line] is also above zero. Preferably, both indicators should be rising. If there are divergences between the two, it is a cautionary signal. The length of the Red histograms tells you about the length of each Up and Down cycle and whether they are regular. As you can see, for all the selected stocks, the cycles are irregular and unpredictable. But we can see that ValuEngine's Growth Model stocks do have some 'early' technical signals for a potential price increase. With that in mind, take a look and analyze for yourself, the potential of Electronic Arts, Provident Energy, MDC Holdings and Regions Financial.
