| Industry Score and Industry Rank Methodology |
© 2003 BreakoutWatch.com
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| Overview | |
| Many Industry ranking systems are based on taking the average price and/or relative price action of the stocks within the industry. With this approach, if an industry is dominated by a few high priced stocks, the ranks will be skewed because the average price of the industry will be influenced by the high price of these few stocks relative to other lower priced stocks. While this does an adequate job, we feel that average price alone does not do the best job possible in describing the behavior of the industry. The goal of our industry ranking system is instead to take a broader view of the technical behavior of the stocks within the industry. Viewed over time, this gives a clearer picture of the technical health and direction of the industry. Our ranking system looks at each stock on its own merits; essentially, a "one stock equals one vote" approach. |
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| Industry Score | |
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We measure the core technical condition of each stock in the industry. This consists of the stock's current price relative to its 50 day moving average (dMA), the stock's current price relative to its 200dMA, the stock's 50 vs 200 dMA, the stock's price relative to its 52 week high, and the stock's RSRank (RS). These core technical scores are then averaged across all stocks in the industry to derive an average core technical score for the industry. We then normalize this underlying value and assign an Industry Score from 1 to 100. Each industry is scored independently from another. An industry in which all stocks' prices are above both their 50 dMA and 200 dMA's, the 50 dMA's are above the 200 dMA's, the prices are each within 15% of the 52 week high and RSRanks all equal 99 will receive the highest possible Industry Score of 100. An industry in which all stocks' prices are below both their 50 and 200 dMA's, the 50 dMA's are below the 200dMA's, the prices are more than 60% off the 52 week high and RSRanks all equal 1 will receive the lowest possible Industry Score of 1. |
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| Market Score | |
| We also calculate a score for "All Industries" or "Market." This is based on the average core technical condition for all common stocks in industries 1 thorough 190, excluding industry 170 (comprised of market indices rather than individual equities). Because the score is based on all stocks with RSRank scores from 1 to 99, the average RSRank for all stocks will always be 50 and therefore core technical points assigned toward the Market Score will always be exactly 0.5. The resulting Market Score will always range from 10 (worst) to 90 (best). | |
| Industry Rank | |
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In order to assign an Industry Rank, we sort the industries on their
underlying average core technical scores from best to worst. We then
assign a rank from 1 to 190 (best to worst). |
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| Market Rank | |
| The assigned Industry Rank for the Market is always 0, but you will notice that in the Industry Analysis tool, the Market is sorted based on its Score relative to other industries. | |
| General Comments on Ranking | |
| Because rank is based on sorting the list of industries from best to worst core technical scores, you will notice that the Industry Rank can change dramatically from one week to the next. This is inherent in any ranking system. You will notice, however, that the core technicals (Industry Score) will trend more steadily over time and we believe that this gives a far better view of the technical action of the underlying stocks than does the Industry Rank in and of itself. This will also alert you to deteriorating technical condition within the industry, even though the industry may be rising in rank. (This occurs when the Industry Score deteriorates at a slower rate than the market and/or than other industries.) In order to help you view the underlying trends more easily, we plot the Industry's Rank, the Industry's Score and the Score for "All Industries" over the prior year.
When averaging core technical conditions for stocks within each industry, you are taking a view of the "average behavior of a group of stocks." In industries where the underlying businesses are substantially dissimilar, you may find you'll get a better comparative point of view by quickly reviewing the price/volume charts of a company's direct competitors than you will by viewing the industry chart itself. In general, while the industry viewpoint will add valuable information to your analysis of the underlying risk of a potential purchase, it is most important to look at a stock based on its individual technical and fundamental merits. |
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