Cypress Point


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Trenders Application

The Trenders application shows how stocks are trending within their industrial groups. This analysis is meant to show where the money is flowing by industrial groups over a period of time.

To access the Trenders application, click on the tab labeled Trenders on the top level of the tabs bar. This page looks very similar to the Movers page that was talked about above.

Trenders Chart

The figure shown above is the result of clicking on the Regional – Pacific Banks item (shown outlined in red). The Detail check box was also selected, and this caused a table to appear that shows all the stocks in the selected industrial group. The percent trend for each stock is shown in this table. The trend for the group is the average of all the trends shown in the Trend Details table. The row containing symbol BBT was also selected in the table. This caused the charts for BBT to appear. You can also click on the BBT button to see the charts.

The motivation behind this analysis is to find out how stocks are trending as a group and the direction of the trend. Money flowing into these stocks is driving the price upward, and hence, the trend will be positive. Similarly, money flowing out to stocks in a particular group will drive the prices lower and the direction of the trend will be downward (negative trend).

It is our hypothesis that when stocks trend as a group the result will be a more lucrative investment opportunity.

How the trend averages are computed

The figure below shows the model as the line through the dot summary data points. The magnitude of the trend is then computed. The chart below shows an example of the model.

Trenders Model

All the percent trends are averaged for all the stocks in each industrial group. The results are shown in the graph as a sorted list of all the groups. Shown in this graph you can see the worst-to-best performing industrial group trends.

After the computation is complete, the graph showing the raking will appear. You can either click on the bar opposite the text, or on the text itself. This will fill the button box will all the stocks in that industrial group. You can then click any of the buttons to see the Momentum chart for that stock.

Trend Movie

At the bottom of the Trenders application you will see a CheckBox that is labeled: Movie. When you select this CheckBox a new window will appear like the one shown below:

Trend Movie

The vertical bars shown on this chart represent the relative percent trend magnitude for all the industrial groups in our database. At present there are 234 groups which are defined by Reuters. The movie begins about six months ago. Each industrial group trend is computed and the trend bars are displayed. This constitutes one frame of the movie. The model then advances time forward by one Dot Summary and the chart is re-displayed. This process continues until we reach today. If you click on the Play button you will see a movie of all these calculations. You can also step forward one time frame (or backwards one time frame) by clicking on the Next and Previous buttons.

In the screen above, the Initialize button was hit and the chart showed the initial starting frame of the movie. The Play button was then hit. After about 450 frames, the Pause button was hit. The screen above shows the Industrial Trends for August 11, 2008. After the Pause button was hit, the mouse was moved over the tallest vertical bar. When this happened, the bar turned red and the read-out below showed that this bar represented the trend for the Airline group.

Further analysis showed that the price of oil began to drop in mid August. The obvious beneficiary of lower oil prices are the Airline stocks and money began moving into this group at that time.

My conjecture is that important trend reversals can be detected by watching their development over time. We are particularly interested in stocks that move as a group. When this happens very strong trends occur within the group. In the example shown above, money began moving into the Airline group and the start of this trend became obvious.

When a group trending occurs we are interested in the point in time where the trend reverses direction. In other words, we look for trends that start to move up from the bottom, or trends that have run their course and are topping out. Detecting such occurrences guide our investment decisions.