Welcome to the weekly Amyrlin Analytics drop, where we use techno-fundamental analysis to put the wind at your back, and help you invest with conviction.
Quick note: We're pleased to be bringing this analysis to you absolutely free all the way through the end of April 2021. Starting Friday, April 2, however, you will be required to be a free subscriber to Amyrlin Analytics in order to access these analyses.
What would Bill O’Neil Be in?
Bill O’Neil is the founder of Investor’s Business Daily, the author of How To Make Money In Stocks, and considered by many to be one of the greatest investors of all time. Bill’s strategy – known as CANSLIM – was largely about putting your cash into stocks with great fundamentals and great technicals. Jim Roppel, another phenomenal growth stock investor, and a former mentee of Bill O’Neil’s, has provided some additional context about Bill being a “liquidity junkie”. The below plot is designed to help you quickly eyeball stocks that Bill O’Neil might be invested in, or might be considering investing in, were he still active.
Tip: The bigger the circle, the more liquid the stock is. The top-right quadrant, labeled “The Bill O’Neil Quadrant”, is ideal, but don’t discount a stock if it’s liquid and on the bottom-right.
Where’s the money going?
You want to invest with the wind at your back in as many ways as possible. One way to accomplish this is by investing in companies who are part of a hot group. The below plot helps you accomplish this by filtering for stocks that are part of one of the top 50 industry groups, while also visualizing how that group rank has changed both in the short-term and in the intermediate-term.
Tip: You will often see multiple ticker symbols associated with each bubble. That is because the bubble represents a group, and multiple stocks exist within each group. Note that the larger the bubble, the more highly ranked that industry group is.
Fundamentals and liquidity are what attract the institutional buying that creates the upside price momentum. Bill O’Neil liked to invest in stocks which had consistently accelerating earnings, sales, and after-tax margins over the last three quarters. Not very many stocks meet this criteria, which helps us narrow our focus. This plot does that for us, and then pinpoints focus on stocks with the most liquidity and best price performance.
Fund Increase in Top Groups – Percentage Increase
Institutional investment is what drives stock prices up. Another way to put some wind at your back in the market is to make sure the companies you are investing in are attracting an increasing amount of institutional dollars. The below plot looks at this number on a percentage basis, for the current top 10 industry groups.
Tip: Make sure you are aware that percentages can be fickle when based on small numbers. A company that grows from 3 institutional investors to 6 institutional investors will have 100% growth by that metric, while a company that goes from 500 to 1000 investors will have 50% growth by that metric. The next plot after this one will visualize absolute values.
Fund Increase in Top Groups – Absolute Increase
The value of this plot is much the same as what is detailed for the previous plot, with the important distinction that this plot is visualizing the absolute number of additional institutional investors in each security.
Fund Sponsorship, Quality and Quantity (Absolute Values)
Not all institutional investors are created equally. You want to hold investments that are supported by high-quality institutions, with quality being defined as the recorded performance of those institutions. Luckily, we can account for this with Sponsorship Rating, with a rating of A representing best-in-class institutions. The below plot visualizes the quantity of institutional support (the higher the data point, the most funds are in the stock), the quality of institutional support (the further to the left the data point, the higher the quality of the funds in the stock), and the quarter-over-quarter increase in fund ownership (lighter colored datapoints represent a greater increase in funds). The stocks that are invested in by a high number of excellent institutions are labeled specifically.
Note: This analysis was requested by a subscriber. If you have an analysis in mind that you would like to see represented in the weekly analytics drop, make sure to contact us.
Fund Sponsorship, Quality and Quantity (Percent Increase)
The only difference between the below plot and the one above is that fund increase is represented as percentage gain instead of absolute gain. This is valuable to look at because all stocks highlighted in this plot are going to very liquid, and so large percentage gains on significant liquidity denominators represents some monster institutional appetite!
Liquidity matters! It takes institutional investment to create sustained price moves in stocks, and institutional buyers require liquidity in order to support their huge buying (and selling) power. This plot shows only stocks that are in the current 10 top performing groups, who have reported increasing institutional sponsorship, and have above median liquidity and above median price performance compared to all other stocks that meet that same criteria.
New Leadership, New Performance
The `N` in CANSLIM stands for “new”, and one of the things Bill O’Neil looked for in companies to meet this criteria was whether new management had been installed recently. He saw this type of change as potentially reinvigorating to a company, and capable of pumping new lifeblood into the stock as a result. The below plot shows the symbol for companies who have installed a new CEO in the last 12 months and whose stock price performance compared to the S&P500 is performing at its strongest levels in the last 52 weeks. Liquidity is represented by bubble size, price performance is on the y-axis, and group performance is on the x-axis.
Tip: Focus on the top-left quadrant. This is where the strongest stocks in the strongest groups will print. Pay attention to liquidity, and you will have four different types of wind at your back.
Alpha and Beta Analysis
The purpose of the following plot is to help you quickly identify stocks strong-performing stocks with high alpha and attendant beta. Alpha is an expression of how large a price move a stock would have made in either direction on a daily basis, assuming the S&P 500 remained flat. Beta is an expression of a stocks price volatility relative to the performance of the S&P 500.
Tip: Many low-risk traders look for stocks with high alpha and low beta. The absolute values of these numbers are important. For example, a stock with a 6 beta coefficient and a stock with -6 beta coefficient have equally strong betas. The closer to the vertical line on the plot, which represents a 0 beta coefficient, the lower the beta.
Liquid High Alpha
It’s one thing to have high alpha and dynamic price movements. It’s another thing to be liquid, thereby increasing the probability of a sustained price movement. In this analysis, the most liquid stocks with strong price performance and alpha are highlighted, so you can ride the coattails of massive institutional buying.
The float turnover analysis helps us quickly understand the window it takes for a stock to be transacted a number of times that is equivalent to the number of shares in its float. On the below plot, the higher the ticker symbol is printed, the more quickly it turns its float over. The further to the right the ticker symbol is printed, the bigger the stock, likely making float turnover more difficult to achieve. The pool of stocks has been limited to stocks that are performing among the top 80 percent of stocks, and that are currently turning their float over every 32 days or fewer, and only the top 10 percent of those as measured by float turnover rate are labeled.
Appetite (Market Capitalization/Float Turnover Quotient)
This is another way to understand float turnover, but it is better at illuminating how voracious an appetite investors have for a particular stock, by simultaneously accounting for stock transaction volume and the stock’s market capitalization.
Short Squeeze Candidates
This analysis looks at stocks that are less than 25% off their recent highs. Of those, the 20 stocks with the highest percentage of their float currently sold short are highlighted. The idea here is that investors who are selling the stock short are likely under pressure on account of the stock’s stronger performance. More movement to the upside in these names could create a cascade of investors buying the stock back to cover their shorts, in turn accelerating the upwards movement even further.
Short Squeeze Candidate MoM Trend
This analysis builds off of the previous analysis. All the stocks listed in the below plot are the same stocks as labeled in the previous plot. This plot shows if short interest in the stock is increasing or decreasing.
Strong Stocks With New Short Interest
This analysis highlights stocks that currently have price performance in the top 20 percent of the market, and have seen a significant increase in short interest month-over-month. The size of the bubble corresponds to the absolute number of shares in the stock’s float that are currently sold short.
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