Nicole's Cheat Sheet to Reading Stock Charts

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Full disclosures and conditions can be found in the podcast description. Hey, fam, it's Nicole Lappen.
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I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.

You know that I'm a big believer of the whole index funds and chill approach to investing, slow, steady, long-term wealth building.

But even if you're not a day trader, understanding why a stock moves, when it's strong, and how to read the signals of the market is a superpower.

This helps you see what's really happening beneath the surface.

It's the difference between driving blindly and having a dashboard full of gauges to tell you exactly when to speed up, when to slow down, or hit reverse and go home.

Those abbreviations like PE and VOL that show up on the ticker tape on the bottom of CNBC, those are not just noise, they're a language. And today I'm going to teach you how to speak it.

And by the way, if you're listening to this episode and not watching it on a video, this is one of the episodes where watching it on Spotify or on YouTube is extra helpful because I've got visuals that will make all of these charts and patterns totally click.

So, let's start our analysis by breaking down what these numbers actually mean and, more importantly, how to use them to spot strength and avoid weakness.

The study of these numbers is called technical analysis. So, let's start with something simple: the ticker.
This is the nickname that references a particular publicly traded company.

Some companies have fun with these. The Cheesecake Factory's ticker is C-A-K-E cake.
Harley-Davidson is H-O-G hog. They get cute with it sometimes.

In this episode, I'm going to use a made-up example with the ticker symbol M ⁇ N because duh. Next, price.
This is the current cost of one share.

I made a fake stock table for M ⁇ N, which you will see if you're watching the video. I'm going to assign some values here because I think it really helps contextualize these terms.

Let's say the price for M ⁇ N is 20 bucks. That means if somebody wanted to invest, they would need $20 to buy one share.
Open is the price of one share at the time the market opened that day.

So let's say at 9.30 a.m. Eastern Time, when the opening bell rings, MNN is trading at $19 per share.
Already from these first two pieces of information, we know that we had an amazing day. Why?

Because the price of the stock is climbing. At the beginning of the day, the stock was at 19 bucks, but it jumped up to $20 per share at the end of the day.
Great news.

High will tell you the highest price the stock reached that day. So for MN, let's say the highest price that the stock reached was $20 per share.
Low is the opposite, obviously.

On the day that we're checking the stock, let's say MN hit a low of $18 per share. That is a sign that our stock price was not linear throughout the day, which makes sense.

We know this because remember, we know that the stock opened at $19 a share and is now at $20 a share, but at some point it did hit $18 a share. That dip could be something or it could be nothing.

Stock prices are never linear. They bounce around all the time, and we are still happy knowing that the stock closed at 20 bucks.
In other words, it closed on a high.

52-week high. This is the highest price the stock has reached in the last year.
Let's say M ⁇ N has a 52-week high of 20 bucks a share. That means that we're at an all-time high.

It is a great day to be a fan of M ⁇ N. 52-week low is the opposite.
That's the lowest the stock has been in the last year. Let's say the 52-week low for M ⁇ N was 10 bucks a share.

What does this tell us? If the current stock price is closer to the record high than the record low, investors may evaluate that the stock is one that is growing in value.

For example, an investor would look at M ⁇ N and see that the price has gone from 10 bucks to 20 bucks. More good news.
Now let's look at net change.

This is how much the stock has changed since the last market close. It can be shown as either the difference in dollars or as a percentage of the day's last price.

Unless there's a percent symbol in the chart, the data is in dollars and cents.

If M ⁇ N's net change is plus one, that means that the current price of M ⁇ N is $1 higher than it was when the markets closed yesterday. Now let's get into some more mathy stuff.

MKT cap stands for market capitalization, which represents the value of a company. In the world of Wall Street, market cap is used as a metric to classify companies.

Let's say M ⁇ N's market cap is $20 million. That would be a lot of money for any one person, but in the stock market, that's not so impressive.

A company with a market cap of under $300 million is called a micro-cap or a penny stock. A small cap company is a company with a market cap between $300 million and $2 billion.

Companies with a market cap value between $2 billion and $10 billion are considered mid-cap, and large cap status is reserved for companies with market caps between $10 billion and $200 billion.

If you can believe it, there's also a mega-cap company, which is everything more than $200 billion.

That's for giant, giant companies like Apple, that currently has a market cap of nearly $4 trillion.

Conventional wisdom is that risk decreases as the cap gets larger. In other words, a mega cap company like Apple is considered too big to fail.

On the flip side, it's generally suggested that smaller cap companies are riskier but have most room for growth. Sometimes these things are true, but not always.

When Enron went under, for example, its market cap was $65 billion,

putting that company in the large cap category. Now we have Vol.
Vol stands for volume of shares traded within a timeframe, typically one day.

I'm saying M ⁇ N volume is 1 million, meaning 1 million shares were traded today. Understanding what volume means for your investment is a little bit tricky.

High volume means a lot of activity was going on, but it doesn't tell you whether people were buying or selling, and that's an important one to know.

Div or dividend shows the amount that companies pay shareholders per year from their profits. If you're looking to make more money from dividends, obviously this is important intel for you to know.

If you see a dash or an empty value in the div column, that doesn't necessarily mean that the company made no profit.

It could simply mean that the company does not issue dividends and not every company does. Beta is the funkiest one, so stay with me here.

Beta is the measure of a stock's volatility within the greater context of the stock market as a whole. The volatility or beta of the entire stock market overall is assigned the value of one.

So that sort of represents the norm. A beta greater than one means the stock is more volatile than the market.

A beta less than one, you guessed it, means the stock is less volatile than the overall market.

For example, a company that falls into a pretty steady industry like, let's say, consumer goods, categories like groceries, cleaning products is going to have a low beta.

Verizon is a go-to example for a value stock and has a beta of 0.3. That means Verizon is less volatile than the stock market overall.

But a company within a more variable industry like Energy, let's say, is going to have a higher beta. NVIDIA has a beta of over two.

That means it is twice as volatile as the overall stock market, which isn't necessarily unusual with a hot stock that is always in the headlines. But of course, nothing is ever easy.

There are also negative beta values. A negative beta value means that the company's stock moves opposite to the market.

In other words, in moments that the stock market is going down, companies with negative beta values go up. An example for this is gold.
When the stock market declines, gold prices tend to rise.

Investors tend to look for investments with negative beta values as hedges against the market, or in other words, if the market crashes, these investments will rise in value and hopefully cancel out some of the losses.

I think beta is one of the weirdest of all of these metrics. So congratulations if you got through it with me.
It only gets easier from here, I promise.

EPS or earnings per share is a measure of the company's profitability. It tells you how profitable a company is per share.

For all of you quants out there who learn by numbers, EPS is calculated by dividing total profit by the numbers of shares outstanding.

You might notice that not a lot of tables have EPS specifically on them, so you might be wondering why the heck I'm mentioning it. The reason is EPS is used to calculate the PE ratio.

PE ratio is an important one. PE represents the relationship between the stock price and the earnings per share, or simply it shows how much investors are willing to pay for each dollar of earnings.

PE ratios are used to help investors gauge how how much bang they're getting for their buck or whether the company is really worth how much people are paying for it.

Again, for you quants out there, PE ratios are calculated by dividing the stock price by EPS. That's why we needed EPS all along.
So let's fill in the equation for M ⁇ N's data.

Let's say M ⁇ N's EPS is 10 and the stock price is 20 bucks. So M ⁇ N's PE ratio is 2.
You don't really have to do the math here.

The PE ratio is normally just given on these stock charts, but we did it for funsies. Anyway, low PE ratios like the sub 20 range usually mean better value.

For example, right now, Verizon's PE ratio is 9, JP Morgan's is 15, Goldman Sachs's is 16. These are all companies that investors consider to be value stocks.

Higher ratios suggest investors are paying more for less earnings, but that's not always a bad thing.

Microsoft, one of the biggest companies in the world and a blue chip company, has a PE ratio of 38, but obviously Microsoft is a very valuable company. So let's unpack this one.

Generally, there are two reasons that a company might have a low PE ratio. First, they suck and they're not making any money.
That's what we may have assumed, but obviously, Microsoft does not suck.

The second reason is that a company might have a low PE ratio because they're taking the money that they're making and then they're reinvesting it, putting it back into the company.

They're basically reinvesting all of their revenue. They don't post any profit, and that could be an amazing move.

Maybe all of the company's revenue is going straight into brand new technology that everyone is gonna wanna buy. I'd consider investing in that stock, wouldn't you?

That's why stocks that investors consider growth stocks tend to have higher PE ratios.

Investors are betting on the fact that because the company is reinvesting in itself, it will get more profitable over time.

If profits increase year over year, the PE ratio should shrink, showing stronger value. If not, investors might lose faith and cash out, pushing the stock price down.
And that is it.

Those are the key components for a stock chart. So far, I've been using a made-up example, but let's take everything we went over today and apply it to a real life example.

I'm not going to tell you which company this is, just give you the numbers. Okay, the price is $161 a share.
It has 2.2 million volume. A 52-week high at $483.
A 52-week low is $4-ish.

The beta is negative two. And the EPS is negative 1.8.

Are you thinking? I don't know, WTF is going on, but this kind of doesn't sound good. Well, you are absolutely right.

This is what GameStop stock looked like about eight months after the GameStop craziness went down in 2020.

There are three big red flags here that I bet you picked up on. Number one, the EPS is negative.
Some finance folks will call this negative earnings, but let's just call it what it is. It is a loss.

A negative EPS means that the company is losing money. Number two, beta is negative.

That means GameStop had an inverse relationship with the market, which isn't necessarily a bad thing like gold, but this beta also indicates that the stock was twice as volatile as the overall stock market.

If you don't have a high risk tolerance, the idea of intense volatility moving in the opposite way of the market probably makes you nervous.

Number three, it's currently trading at almost exactly a third of the 52-week high price, meaning that the stock price has dropped significantly.

If you picked up on any of these red flags, it means that you are doing technical analysis like a pro, and I am so proud of you.

This means that you're speaking the language of Wall Street, which opens up doors for you and your wealth. You should feel really, really good about that.
Let me say one more thing.

All of these metrics basically take the temperature of one stock at one particular moment in time.

You'll need to look at these numbers across several quarters or several years to really evaluate if a stock is a good investment for you.

That's my issue with people making big investment decisions based on a handful of statistics that show up on investing apps or on ChatGBT.

You cannot determine whether a company is growing by looking at its stats at one moment in time. So don't just look at where these stocks stand right now.
Look at how they change over time.

That's going to help you really understand where a stock is going. Or in other words, come as close to seeing the future as you're going to get.
For today's tip, you can take straight to the bank.

Today we tackled technical analysis, but there's another tool that you should know more about, which is fundamental analysis.

Think of technical analysis as reading stocks' vitals, its price, its volume, its heartbeat. Fundamental analysis, on the other hand, is like running lab work.

It really digs into the company's actual health, the revenue, the debt, the cash flow, the leadership, the business model.

When you combine both types of analysis, you stop guessing what the market will do and you start understanding why it moves the way it does.

Money Rehab is a production of Money News Network. I'm your host, Nicole Nicole Lapin.
Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.
Do you need some Money Rehab?

And let's be honest, we all do.

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No, seriously, thank you.

Thank you for listening and for investing investing in yourself, which is the most important investment you can make.