EQUITY
Trading Signals,
Technically Speaking
analysis, however, also can help spot
I
The much-maligned f fundamental analysis is
the typical portfolio manager’s new stocks. The Equity Search func-
field of technical much-trusted golden child, then tion uses MACD to screen more than
technical analysis is the gypsy 120,000 securities by applying any
analysis can help who hangs around the back door: criteria you choose. It helps you find
you decide fascinating, but with a reputation stocks that are moving upward, and
for dealing in nothing more than it screens your portfolios, alerting
what to trade and superstition. you to a technical buy or sell signal
Technical analysis amounted to on any of your holdings.
when to trade it more than superstition, however, for Get started by typing ESRC <Go>.
managers who used it to time their If you haven’t used Equity Search in
long and short positions on Gillette a while, you’ll notice improvements:
Co. stock. In April, July, and Sep- The number of searches you can set
tember 1997, a form of technical up and save has increased from five
to 10. The search criteria menu has
23 data categories—up from 14. And
search results can be displayed in a
customizable spreadsheet format.
There’s also a new way to compare
portfolios.
To use the Equity Search function
to find stocks that have triggered an
MACD buy signal, first set up a
search to find the common stock of
any Standard & Poor’s 500-stock
index company located in the Unit-
ed States. Select one of the 10 cus-
tom criteria sets, type 3 <Go> to clear
old data from the search template,
tab in to name your search, and type
<Go> 2 <Go> to save it.
Next comes the search for stocks.
To select the security type you’re
FIGURE 1. Type G <Equity> MACD D <Go> to see the moving-average- looking for, type 9 <Go>. You’ll
convergence/divergence graph for Gillette Co. for the past year search only for common stock, so
type 1 <Go>, highlighting your
analysis called moving-average con- choice. No more selections need to
vergence/divergence (MACD) sig- be made, so type <Menu> 2 <Go> to
naled major price moves for Gillette save the change (figure 2).
stock, giving managers an improve- Now choose the index you want to
ment over simple price appreciation use as part of your search criteria.
(figure 1). Type 12 <Go>, and choose 15, which
The Gillette example highlights means the search engine will find
technical analysis’s main strength: only stocks that are members of the
providing signals that clue a manag- S&P 500; press <Go>. After high-
er as to when to trade. Technical lighting your choice, press <Menu>
Bloomberg April 1998 67
to return. Type 2 <Go> to save.
Tip Box
This search includes only com- ¬Type MAGZ TECHNICAL <Go>
mon shares. Such stocks as Royal to access BLOOMBERG articles
Dutch Petroleum Co. and about technical indicators and
Unilever, for instance, won’t strategies.
show up. They’re members of
the S&P 500, but their shares are Type MACD <Help> for more
classified as New York registered information about the function
shares, not common shares. To
see New York registered shares in ad- and reversal points to help traders
dition to common shares, return to time trades; directional movement
the security criteria screen and indicator, which defines directional
choose them as well. indicators of trending prices; mov-
Next, choose the countries whose se- ing-average convergence/diver-
curities you’d like to see. Type 15 <Go>, gence, which spots trends based on
and then 9 <Go> exponentially weighted moving aver-
to see stocks from ages; and stochastics, which measure
MACD uses moving averages to find the United States. price momentum.
stocks whose prices are starting to rise Press <Menu> to MACD, the technical analysis
return, and 2 <Go> method you’ll use for this example,
to save your choices. is a way to find stocks whose prices
Finally, choose the technical data are starting to move. MACD spots
for which you’d like to screen. Type such stocks by using exponentially
18 <Go> to see a submenu of tech- smoothed, 12- and 26-day moving
nical categories: moving averages, averages to identify changes in the
which track average price over a underlying security’s price. The
specified period; moving-average difference between the 12- and 26-
intersections, or crossovers, which day averages is represented by a value
plot and compare different moving known as MACD1.
averages for the same security; The function also computes a sig-
beta, volatility, and relative strength nal line from the nine-day exponen-
indicator, which measures the veloci- tial moving average of MACD1.
ty of price movements; parabolic Gerald Appel, editor of the Systems
time/price system, which uses stop and Forecasts Newsletter and author of
The Moving Average Convergence-Di-
vergence Trading Method, proposed
that when the MACD1 line moves
up through the signal line from
below, it’s indicating the optimal
time to go long. Moving averages
can be constructed to track the mov-
ing-average price of a security dur-
ing two time periods. As the shorter,
faster-moving average crosses over
the longer, slower-moving average,
it signals that the price trend of the
security is reversing. Exponential
moving averages are more sensitive
than simple moving averages be-
cause they assign greater weight to
the most recent data, though the
methodology is the same: when the
shorter moving average rises above
FIGURE 2. Type ESRC <Go> and select a custom criteria set. Type 3 <Go> the longer moving average, it’s a
to clear the existing set. Tab in, name the new search, and type <Go> 2 signal the security is currently head-
<Go> to save it. Now type 9 <Go> 1 <Go> <Menu> 2 <Go> to select and ing up and that it’s a good time to
save common stock as your first search criterion buy.
Bloomberg April 1998 69
10–15 days, finds stocks that trig-
gered an MACD buy signal two to
three weeks previously—but might
leave you watching the boat you
missed. For this example, use a com-
promise number: five days. Enter 5
in the highlighted field, press <Go>,
and then press <Menu> twice to re-
turn to the search menu (figure 3).
Type 2 <Go> to save your search. The
security counter tells how many
stocks it’s found that have registered
an MACD buy signal. You can exam-
ine those securities in more detail by
typing 1 <Go> (figure 4).
To see whether any of your exist-
ing holdings have triggered a buy
recommendation, type 8 <Go> from
FIGURE 3. After specifying the S&P 500 index—by typing 12 <Go> 15 the Equity Search Main Menu to ac-
<Go>—and U.S. stocks—by typing 15 <Go> 9 <Go> from the main cess your portfolios. From the list,
menu—screen for technical data. From the Equity Search Main Menu, type choose the portfolio you’d like to
18 <Go> 4 <Go> and modify as shown; press <Go> <Menu> <Menu> screen. Equity Search looks through
your equity holdings and highlights
To use MACD methodology in this the securities, if any, that match your
example, type 4 <Go> from the Tech- search criteria. Perhaps it’s time to
nical Data submenu. Tab in to the increase your position.
upper field next to MACD: All Buy Technical analysis will never re-
Signals in the Past (1–30 Days). place fundamental analysis, but it
Here you can indicate how many represents one more weapon in your
days of trading history you’d like to stock-picking arsenal. It’s time to
include in your MACD screening for invite that gypsy in for a chat.
buy signals. A time frame of one or
two days finds stocks that have just ¬Any comments? Type MAGAZINE
triggered an MACD buy signal, but <Msge>. For reprints, type MAGZ <Go>.
exposes you to the risks of acting too
fast and being hit with a price rever- Greg Byrnes is an applications
sal. A longer time frame, perhaps specialist for Bloomberg in Princeton
FIGURE 4. Type 2 <Go> 1 <Go> to save the search and display the results
70 April 1998 Bloomberg
