12x3 weekly Stoch:
This is the 12x3 weekly slow stochastic reading. A stochastic is a measure of momentum on a scale of zero to 100. A reading of more than 80.0 is overbought (OB), and a reading below 20 is oversold (OS); RM indicates a rising reading, above 20 but below 80; and DM indicates a reading that is declining and below 80 but above 20. It's a sign that a stock has lost its momentum status when the stochastic falls below 80 after having been above it.
The five-week modified moving average, calculated from a simple moving average updated each week by taking the prior sum, subtracting out the prior five-week MMA, adding in the latest weekly close and dividing by five. The MMA is slower than an simple moving average. It's considered a support or resistance (a positive if above, a negative if below)
Value levels, risky levels and pivots:
A value level is a price at which buyers should emerge on share-price weakness, while a risky level is a price at which sellers should reduce holdings on share-price gains. A pivot is a value or risky level that was violated during its time horizon, and which acts as a magnet during the remainder of that time horizon. These levels are calculated in weekly, monthly (M), quarterly (Q), semiannual and annual (A) time horizons, on the basis of the past nine closes in each time horizon. My theory is that the closes over a nine-year period are the summation of all bullish and bearish events for that market or specific stock.
Guidelines for Price Levels
Low-priced stocks, those trading for less than $10, are particularly attractive to individual investors because it's easier to establish a large position in these stocks with less capital. But before you invest in any of the stocks that fall into any of the four categories I've outlined, please consider the amount of risk you can tolerate, and be aware that all of the stocks in these groups should be considered speculative.
Options on Survival:
This group includes stocks trading in the $1-to-$3 range. Stocks in this category are option plays on the company's survival. Buy them only if you can afford to lose 100% of the investment, because stocks become worthless at bankruptcy, which is a high risk for companies with stocks in this price range.
Margin Threshold Stocks:
Stocks in this group trade for less than $5 but more than $3. Many brokerage firms will not allow their clients to buy stocks trading for less than $5 on margin. Keep in mind that these stocks trade below $5 for a reason, like their Options on Survival kin; their companies are at risk for bankruptcy. However, unlike members of that lower-priced group, stocks that trade between $3 and $5 have a better chance of survival.
Five & Dimers:
This class of stocks, those that trade between $5 and $10, tends to stay in that range. Many mutual fund managers, by their fund guidelines, can't own stocks trading below that upper level. If there is a reason for a stock to fall below $10, expect to see selling pressure from the mutual fund managers. Once the selling subsides, and if the stock stays above $5, some speculation is merited in stocks that still have positive profiles. I believe a good strategy for members of this group is to buy tech stocks trading for less than $10, but to keep a sell-stop in case the stock breaks below $5. Stocks from the Five & Dime should be considered speculative. But they can be rewarding if you find the ones that can get back above $10 before they break below $5. A positive chart profile is a good indicator for stocks trading in this range.
Stocks Below $1:
Often called penny stocks, stocks that have drifted down from higher levels to become members of this group become subject to delisting. I will not comment on these, or on stocks trading on the bulletin boards or Pink Sheets because they are so volatile, illiquid or hard to research, if not all three.