Float Analysis™
- A new method of technical stock analysis
developed by Steve Woods. It is based on a little
known idea in the writings of W.D. Gann (See
Origins of Float Analysis - below). It is the
study of float turnover formations, for the
purpose of making more informed buying and selling
decisions by analyzing areas of accumulation/support
and distribution/resistance.
"Float"
-
The number of shares of a corporation that are outstanding and available for trading by the public, excluding insiders or restricted stock on a when-issued basis. A stock's volatility is inversely correlated to its
float.
"Floating supply of shares" - The aggregate of securities believed to be available for immediate purchase, that is, in the hands of dealers and investors wanting to sell.
Float
numbers for all companies are found at
a variety of public sources including
Yahoo Finance, Multex, and
ClearStation. To find a company's
float number, go to Yahoo Finance (http://finance.yahoo.com)
and type in a company symbol and get a
price quote for that stock (Example:
MSFT for Microsoft Corp.) Then
click on the 'Profile' page option.
On the Profile page you'll find the
float number in the lower left corner.
Float
Turnover
– (a term created by Steve Woods) a unit of measurement in the technical
analysis of stocks where the cumulative total of
shares traded equals the number of shares
available for trading, i.e. the float, thus
implying a change of ownership in the stock.
A rectangle on a price and volume chart
that shows the amount of time it takes for a
specific number of shares to trade that equals the
number of shares in the company's float and the
price range of same. (For example, if a company's
cumulative trading volume over the past year was
10 million shares and that same company has 10
million shares in its float, then its float
turnover would be a one year span.) A float
turnover shows the shortest amount of time for a
company’s market capitalization to actually be
realized. Float turnovers constantly change
in much the same way as a moving average. New
volume gets added into the count each day and the
distance going back to the end of the float
turnover changes often as well. Float
turnovers serve as a "proxy" for a
theoretical change in the ownership of a company.
When used as a proxy for a change in ownership,
float turnovers are by definition imprecise. The
reason for this is that the analyst can never be
certain how great a percentage of the float has
actually traded hands in any particular time
frame. In Float Analysis Theory, certain float turnover formations
combined with strong price action show when a
stock's shares are being tightly held thus giving
rise to large moves in price.
PLEASE
NOTE: As of February 1, 2001 Nasdaq implemented
the "Riskless Principle Rule" which
eliminates all double counting of shares. The
NYSE, AMEX and the NASDAQ now all count volume in
the same manner. One hundred shares traded is
counted as 100 shares in the volume.
Float Turnover Formations
- These occur when two conditions are met. First
the stock trades sideways in a consolidation range
long enough for the cumulative trading volume to
equal the stock's float. Then after this first
condition is met, the stock's price moves either
above the highest price in the sideways range or
below the lowest price in the sideways price
range. There are five commonly found formations in
float analysis. These are: the bottom, the top,
the base in a rising trend, the overhead support
(in which the stock's price drops briefly below a
single float turnover base of support and quickly
reverses direction), and the weak base of support
(in which the stock's price briefly breaks above a
single float turnover base of support and quickly
reverses direction).
Float Turnover Formations
Right At The Top and Right At The Bottom -
Float turnovers with a valid breakout point will
ALWAYS be found right at the exact location that
marks the long term bottom and at the exact point
that marks long term tops. The float turnover
formation at the top denotes the "dumb money
crowd" that gets stuck holding losing
positions. The float turnover formation at the
bottom denotes the "smart money folks"
that are happy to be holding winning positions.
These formations demonstrate an idea at the heart
of Float Analysis: if a large percentage of a
stock's ownership changes hands while the stock's
price is moving sideways then a big move in price
will probably soon occur.
The Multiple Float Turnover
Base of Support - A sideways price pattern in
which several consecutive float turnovers are
found and from which a stock's price makes a very
big rise to the up side. In bull markets, it is the strongest base
of support found in float analysis.
The Single Float Turnover
Base of Support - A sideways price pattern
that is one float turnover in length and from
which the stock's price rises to higher levels.
The Origins of Float Analysis
- W.D. Gann in his book Truth of the Stock
Tape stated several times that it was
important to study a stock's volume in relation to
the number of shares actually being traded. The
following quotes contain this fascinating idea:
"It is always important to watch the volume
of sales daily, weekly and monthly and consider
the total shares outstanding of the stock that you
are watching." "The volume on the
advance from 116 5/8 up to 139 3/8 amounted to
1,600,000 shares, which was nearly three times the
total capital stock outstanding and probably five
or six time the floating supply of shares."
and "…when the stock was nearly 100 points
higher, the capital stock was changing hands about
twice each week." Based on these statements,
Steve concluded that Gann had added volume numbers
cumulatively and recognized distances on his
charts in which the float had gone through a
turnover thus implying a change in ownership and
helping one to determine areas of distribution and
accumulation.
The "Woods
Cumulative-Volume Float Indicator" (WCVFI)
- Also known as the Precision Profit Float
Indicator it is a stock indicator that tracks
float turnovers by adding volume numbers
cumulatively in a reverse chronological direction
on a day to day basis. The end of the float is
referenced by placing a dot above the bar in which
a complete turnover has occurred. Two lines are
added to reference the highest and lowest prices
reached during the float's turnover. These lines
also serve as trigger lines that alert us to buy
and sell signals. Created by Steve Woods and Jan
Arps. The new MetaStock version
created by Equis eliminates the dot as
it is not essential to the indicator.
The "Woods
Cumulative-Volume Channel/Historical
Indicator" - This indicator is derived
from the WCVFI. It plots the highest and lowest
price range point of the current float turnover on
a bar to bar basis. Thus it creates channel lines
that show wherever the price breaks above or below
an existing float turnover.
Since float turnovers formations
change from day to day much like a moving average,
I always plot both the WCVFI and the Channel
indicators together. This allows me to see the
present float turnover in relation to past float
turnovers so that multiple float turnovers bases
are easily identified.
