Real World  |  OCT 1998

Uncovering Value in an Oversold Stock by Tamalyn V. Crutchfield

This trader walks us through one of her trades, detailing the indicators she used and the decisions she made. The age-old philosophies of “Buy, low, sell high” and “Buy cheap, sell rich” are the investing approaches every investor strives toward. Unfortunately, the task of uncovering qualified stocks is not as easy as the four-word philosophies imply. By qualified, I refer to an undervalued stock that is technically and fundamentally sound enough to appreciate in price. The challenge is not just limited to finding undervalued stocks; it is to identify those stocks that have exhausted their downward tendencies and are setting up for an upward move. Here is my approach to identify stocks ready to advance. When screening for technically undervalued stocks, I utilize daily data and employ four primary traditional indicators — the stochastics oscillatorƯ, relative strength indicator (RSI)Ư, moving average crossover, and moving average conver-gence/ divergenceƯ (MACD). I also use the multiple time frame approach. Using this strategy, I use daily data to screen for acceptable stock candidates and then scrutinize the monthly chart for trend confirmation. Finally, I utilize the 60-minute chart as my entry timer. When seeking sound, undervalued stocks, especially those with which you are not intimately familiar, it is important to have sufficient technical and fundamental supporting data. Even the staunchest technician will admit that fundamental confirmation is key to proper stock selection.

by Tamalyn V. Crutchfield