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1992issue C061-8

Three-gate stock selection with ranks and point and figure

This archive workflow selects names through three sequenced gates rather than one blended score. An earnings checklist decides eligibility and later exit, rank-rotation orders only the survivors, and logarithmic point-and-figure can still veto a purchase if the path is not zigzagging upward.

  • The earnings-consistency-screen is binary: a down year in the last five annual earnings prints, or a quarter in the last two years below the same quarter a year earlier, deletes the name.
  • Rank-rotation scores only the listed-market shortlist of 30 to 50 names, totaling six fundamental plus-minus-marks and seven technical plus-minus-marks into fundamental, technical, and combined ranks.
  • Point-and-figure remains a veto: purchase is reserved for a logarithmic path that is zigzagging upward, with higher highs and higher lows, and without an excessive price-to-earnings reading.
  • Editorial reading: combination is testable only when screening, relative priority, and chart confirmation can each force abstention.
Entries in this reading3 entries
Current trackPoint and figure chart37 readingsPre-trade checklist43 readingsRank rotation76 readings

A sequenced checklist, not one score

This archive workflow treats stock selection as a checklist-process. A name can be refused at the earnings screen, at the listed-market and shortlist stage, at the combined rank, at the chart gate, or after a later quarterly earnings break.

The sequence is fixed. Names that fail the earnings test never reach the ranks. Names that never enter the shortlist are not compared. Purchase is still withheld unless logarithmic point-and-figure shows a path that is zigzagging upward without an excessive price-to-earnings reading.

Eligibility and the later exit

The first gate is an earnings-consistency-screen. A name is deleted if any of the prior five years shows a decline in earnings per share, or if any quarter in the last two years prints below the same quarter of the preceding year.

Surviving names are further restricted to a major listed exchange. After that cut, hundreds of qualifying names are reduced to a study set of 30 to 50.

The same earnings test stays in force after a purchase. If a later quarter reports earnings per share below the same quarter of the preceding year, the name is sold.

Ranks only among the survivors

Only the shortlist is scored. Rank-rotation assigns a plus-minus-mark, from double plus to double minus, inside each of six fundamental angles and seven technical angles. Those marks are totaled into a fundamental rank, a technical rank, and a combined rank so that only relatively stronger names stay in the working set.

Fundamental marks favor lower price-to-earnings, larger capitalization, a steeper least-squares slope fitted to the logarithms of earnings per share, a positive latest-earnings deviation from that fitted line, a cash-only dividend record, and a lower pe-growth-ratio.

The pe-growth-ratio is price-to-earnings divided by the fitted earnings-growth rate. It is split into quartiles. The highest 25 percent of ratios are marked worst. The lowest 25 percent are marked best.

Technical marks include current price versus five- and 19-week exponential-average equivalents, swing classification after a 10 percent filter, an insider score, the ratio of volume on the last five rising days to volume on the last five declining days, relative strength versus a broad index, the count of institutional holders, and the three-month change in the institutional share of holdings.

Combined, fundamental and technical ranks for three NYSE growth names

Among the three names Merrill scores in Figure 1, Fannie Mae is the only one near the top on both ledgers (fundamental 4, technical 3, total 4). Coca-Cola finishes 9 overall, helped more by the technical side (8) than by fundamentals (23). Clayton Homes is left at a combined 28 because a fundamental rank of 31 overwhelms a middling technical 12. Rank 1 is best; the figures are the published ranks from the rating sheet, not a re-score of the plus-minus marks.
Among the three names Merrill scores in Figure 1, Fannie Mae is the only one near the top on both ledgers (fundamental 4, technical 3, total 4). Coca-Cola finishes 9 overall, helped more by the technical side (8) than by fundamentals (23). Clayton Homes is left at a combined 28 because a fundamental rank of 31 overwhelms a middling technical 12. Rank 1 is best; the figures are the published ranks from the rating sheet, not a re-score of the plus-minus marks.KO, FNM, CMH

Merrill first totals the plus-minus factor scores, then ranks those totals, so tied scores cause some rank numbers to be skipped.

The chart can still refuse the purchase

A favorable combined rank does not complete the purchase decision. Logarithmic point-and-figure is the last purchase gate. It accepts only a path that is zigzagging upward, with higher highs and higher lows, and whose price-to-earnings does not appear excessive.

Comparison charts keep a filtered-swing only after moves smaller than 10 percent have been discarded. A logarithmic vertical scale lets names be read on a common basis.

Dashed overlay lines equal to earnings per share multiplied by 10, 15, or 20 are used to judge how expensive price is relative to those multiples and to compare growth by the slope of the lines.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
11 of 30 in the Point and figure chart track
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All readings on this track · 30 readings
  1. 1988Constructing trend definitions with filters and lines
  2. 1989Reversal count as the clock on point-and-figure charts
  3. 1989Point-and-figure setup and session-average entry windows
  4. 1989Two-scale point-and-figure trendlines and stop placement
  5. 1989Adjusted net asset value, tighter reversals, and written stops on a fund point-and-figure chart
  6. 1990Stack option odds after point-and-figure signals
  7. 1991Constructing a point-and-figure downtrend-break
  8. 1991Constructing point-and-figure box and reversal charts
  9. 1991Constructing a close-tested one-two ladder on a point-and-figure chart
  10. 1992Point-and-figure, breadth, and volume as falsifiable hypotheses
  11. 1992Three-gate stock selection with ranks and point and figure
  12. 1993Constructing combined stochastics and point-and-figure relative strength
  13. 1997Point-and-figure box scale and reversal construction
  14. 2000Cotton weekly point-and-figure: late-stage decline, named weekly close
  15. 2000Constructing point-and-figure charts for support, resistance, and breakouts
  16. 2001Swiss franc: seasonal permission and a weekly point-and-figure breakout
  17. 2001Constructing point-and-figure boxes and reversals
  18. 2002Point-and-figure construction: box, live column, and three-box reversal
  19. 2003E-mini point-and-figure box-size and a descending-triangle breakout
  20. 2003A reconstruction critique of point-and-figure daytrading
  21. 2004Point-and-figure column moving-average crossovers
  22. 2005Box-series transforms for trend and channel work
  23. 2006Constructing bearish point-and-figure support breaks
  24. 2008Point-and-figure forex breakouts and triangles
  25. 2012From tactile charts to written trade rules
  26. 2013Combine a Point and figure chart and Moving-average crossover inside one System optimization procedure
  27. 2015Point-and-figure time and volume limits are conventions to test
  28. 2016Measurement-first critique of indicator defaults
  29. 2017Point-and-figure construction, reversals, and column-based overlays
  30. 2019A 2019 charting case as a three-check trend classroom
By fieldDecision process69 readingsBy year1992115 readings
All 37 readings tagged Point and figure chart
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