There is a column for the signal level in the weekly signal evaluations for the dividend alarm members. We explain what means the signal level for you and how you can use it in the practice in this blog article.
In the weekly signal evaluations there are always numerous purchase signals and also sell signals. Every signal does not have to trade a right immediately. With the table column for the signal level, the dividend alarm members immediately see, how far a share has already run in their signal.
A helpful indicator is the signal level
We were often asked by our members to the Launch of the German dividend alarm how we assess a certain share and its signal, even a purchase signal or a sell signal. If we have dealt with a share more nearly, we like to make a comment on it. But for many shares we should get themselves first to find out why a current signal was generated and whether this is already distinctive or only fresh generative.
If there would be another helpful indicator for a signal, the members could already recognize the importance or urgency of the signal at first sight. The signal level has arisen from this idea.
We do signal evaluations without the indication of the respective signal thresholds consciously in the weekly dividend alarm. By the permanent check and recalculations these are always adapted to the current situation. Moreover, it is the sense of the dividend alarm to deal only with the shares which have generated a signal. All other shares which are in a neutral phase therefore remain unnoticed.
Even if the one or other reader would like to know whether one of his favoured shares stands shortly before a signal activation. In the reason this preliminary information does not make meaning at a long-term investment strategy. One would pass to supervise his portfolio always and permanently at the end. As soon as a share stands shortly before its signal, one would already deal intensively with the share and act scenarios possible perhaps out. This would lead up to early purchases and sales. This takes unnecessarily time and performance.
The procedure of the dividend alarm strategy is clearly therefore defined. A share is taken to a close look at only if it has activated a signal. The hot phase only then starts. And this can last for several weeks or even months. So there is no hurry or early interaction at all. The dividend alarm permanently checks our shares and depositories the dividend for us.
Depending on individual situation of single shares and the respective market situation, an activated signal can expand strongly in the further course. To be able to assess this situation better, one can take the signal level for help. It shows how far a share has already run in its signal and joins easier a comparison between signal evaluations as well as with other shares of the same line of business.
Being able to better assess different signal levels
The signal level does not have any defined frame from 1 to 10 and does not orientate itself at grades of 1 to 6 or similar scales either. The signal level is rather shown only at activation of a signal and it says how far the signal has already developed. Therefore, there can be low signal levels of 5% but values, such as extreme 110%. To be able to assess the values better, we will go into single values.
I marked in the little graphic which area the signal level only judge at all. The green line shows the signal threshold for a purchase signal. If the black share price should cross the green line to below, the purchase signal is activated. Since every purchase signal does not proceed identically, the share price can swing within the purchase signal less or more. The expansion of the blue highlighted area is represented by the signal level. A share is the more nearly the smaller the value, at its signal threshold. The signal level behaves analogously at the red sell signals.
Weak signal level
A signal level of 1% would therefore mean that this signal was just activated or that the share stands for the deactivation of its signal at the threshold. The interesting and rare phase starts at that point. The signal thresholds in the database of the dividend alarm do not have been calculated in the way that one does not have to act rashly. The share is rather entering now a range which is only seldom reached at a long-term philosophy.
Advanced signal level
A signal level with a value of 30% already reports a far advanced development, but still in the context. A share does now not always reach the same borders as in the past.
Generated earlier signals could reach a signal level of 50% for example while only 35% in other time periods. This can have different reasons. Therefore, the valuation method of the dividend alarm checks assessments always reached newly with these in the past to be able to adjust the values of the signal thresholds better. There is no firm value how far the signal level can develop. The dividend alarm is therefore a system optimizing himself. The dividend alarm adapts and does not stop.
Extraordinary signal level
Only values above 50% at the signal level should have listened attentively! A share is in this case in an extraordinary really rare situation or has not happened perhaps even in this form till now. It is important here to deal intensively with the respective share.
There will be reasons why the share has so far run in its signal. As a rule, there are difficulties the enterprise is fighting against or the dividend has “changed” surprisingly strongly. This has to do with dividend cuttings already carried out or expected from the market. Some of such runways are found at the purchase signals. The continuation of the dividend payment should be analysed also here.
Further facts to the practical application of the signal level
The height of the respective signal level alone does not say much yet. The signal level is only really helpful if one can compare different advises criteria. A considerably better picture can arise by direct comparative possibilities. Therefore, we can show you a couple of working examples.
We personally primarily use the signal level for an industry-specific comparison. The indicator is suited for it very well. Normally, identical line of business values are judged similarly and one can recognize well which values are not well and which have an even further potential.
We would like to explain this briefly with a small example. We have selected the category of consumption here at the sell signals. To make it simple we have removed columns not required consciously.
The enterprise here in the 1st line is striking. It achieves a high value at the signal level in comparison with the other three industry-specific colleagues. The share is already expensive due to its assessment calculated individually. In the comparison one sees that a clear overvaluation was reached here. If one takes the line of business as a scale, the share from line 1 is abnormal and is judged more expensively than the competition which is on a similar standard.
Exemplary dividend history
The better a share has developed in the past, the more exactly the signal thresholds can be calculated and configured with the dividend alarm. The range within which such shares sway during a signal phase is considerably lower. One mustn’t expect high values at the signal level here.
Reliable results at the signal level, accompanied by few runaways dividends, supply aristocrats and enterprises which have not lowered their dividend for many years (high dividend continuity). In the weekly evaluations these shares are marked with a * (dividends aristocrats) and the column DK shows the time period of the dividend continuity.
If a share should show a high value nevertheless with a good dividend history at the signal level, then it is here a really rare situation and there will be quite individual reasons for it which can normally be found fast.
Extremely high values
Sometime it can happen that very high values are reached at the signal level. At distinctive features we will in principle always check the calculation results manually but high values have often their right. It can occur that enterprises raise so strongly or also cut their dividend, that this leads to a very strong distortion. This is manifested in the calculations of the operation audit too and leads to inaccurate results.
The question is how one shall react here? Simply ignoring the calculations and adjusting the threshold values in the database manually so that it looks “beautiful” again is not the solution. In the individual case we check such values and correct the database.
Normally we leave values found out automatically. Enterprises are almost always concerned in such cases with an irregular dividend payout. The is no continuity through a regular dividend after a couple of years of the relaxation. Actually it would make more sense in this case to take such shares from the dividend alarm. The readers see with such values that these enterprises have problems with continuous distributions.
An example is the enterprise NRG Energy. The dividend was cut from $0.14 to $0.03. The calculated sell signal was activated and the signal level is over 100%! It makes no sense to adapt the sell signal and thus also the signal level artificially, because the share remains a sale according to our strategy and this condition was caused by the enterprise itself. With the lowering of the dividend, It has caused a situation which was not given jet. One must therefore be able to read such occurrences with the data.
Because of the high values at the signal level, the dividend alarm members can see fast that something is wrong here. In this case it was due to the extremely strong dividend cutting. In other cases, if there were stock split-ups or other explanatory points, an adaptation of the signal amplitudes absolutely makes sense.
There surely will be questions on the practical application of the signal level from the reader. Write us if you have questions about the practical application of the signal level. We will regularly complete helpful facts and enlarge the article.