Mike
06-26-2018, 03:29 PM
A new member (Ram) has asked a question through private channels. I will answer here for everyone.
Ram,
I manage the high growth stock section. I create the watchlists each weekend.
I generate the high growth list through a process that first downloads all stocks in the IBD (MarketSmith) database above $5. I compute four parameters that analysis shows correlate well with equity price increases:
1. Liquidity rank (1 to 99 percentile ranking based on average dollars traded per day)
2. Investors Business Daily (IBD) Composite rank, a 1 to 99 percentile rank based on fundamentals
3. Margin rank (1 to 99 percentile rank based on ROE and pre-tax margin)
4. Demand-supply rank (1 to 99 percentile rank based on the ratio of 50-day average volume divided by the float)
I sum these four rankings and then select the top 10%, maybe 400 stocks. I then filter candidates by the following:
1. IBD Accumulation/Distribution rating above C-
2. The demand-supply rank above 45 (equates to stocks that trade above 0.6% of the float every day on average
3. Closing price above $15
4. Liquidity, stock trades above $10 million per day
5. Average of last two quarters EPS growth 25% or higher
6. Average sales growth over the previous two quarters greater than zero
7. Up/Down volume ratio at least 0.85 (50-day ratio of total volume on up days divided by total volume on down days)
8. Pre-tax margin of at least 16% or ROE at least 17%
9. Stock not undergoing an acquisition
10. Stock chart base count less than six
The process so far is 100% repeatable and automated (except base stage count). The filtered list produces about 60 stocks that are then manually inspected for fundamentals and charts patterns. I focus mostly on weekly interval charts using MarketSmith.
The inspection process checks that the stock is in an uptrend I then look to see if the stock is in a buyable basing pattern such as a cup with handle, double bottom, flat base, ascending base, high-tight flag, etc. I follow William J. O’Neil’s CANSLIM process defined in his book How to Make Money in Stocks when I analyze these stocks. I check that the bases look sound. The filter process defined above lets in a lot of stocks that I choose to drop from the list. I finally end up with a watch list that is maybe 10-20 stocks. I conduct this process over each weekend and upload the list either Sunday night or Monday morning. The manual review process takes about four hours.
I have a separate process for identifying short candidates; I look for stocks trading more than 1 million shares per day on average that have been past leading issues, usually identified as a long candidate long ago. They should have shown a topping pattern such as a head and shoulders top or failure of a late-stage base. I then check that the candidates are in a downtrend and find stocks that rally into resistance areas, usually 10-week or 40-week moving averages, where hopefully they stall and continue their downtrend.
The volume alert trigger process looks at the same stocks reviewed while producing the long watch list. I check that the closing price is trading in proximity to either the 50-day moving average or 10-day moving average. If so the symbol goes on the list. If you google “Pocket Pivot” and review material generated by Chris Kacher he describes the buying opportunity. We look for stocks bouncing off the 50-day or 10-day moving averages or up through these averages on high volume. High volume is defined as higher than any down-day volume during the prior 10-trading days. The volume trigger alert process attempts to identify these candidates in real-time by extrapolating real-time volume to end-of-day volume and comparing that volume with the minimum volume threshold. These stocks become highlighted in green throughout the trading day.
The process outlined above create the stocks that I place on my own watch list and share here.
Ram,
I manage the high growth stock section. I create the watchlists each weekend.
I generate the high growth list through a process that first downloads all stocks in the IBD (MarketSmith) database above $5. I compute four parameters that analysis shows correlate well with equity price increases:
1. Liquidity rank (1 to 99 percentile ranking based on average dollars traded per day)
2. Investors Business Daily (IBD) Composite rank, a 1 to 99 percentile rank based on fundamentals
3. Margin rank (1 to 99 percentile rank based on ROE and pre-tax margin)
4. Demand-supply rank (1 to 99 percentile rank based on the ratio of 50-day average volume divided by the float)
I sum these four rankings and then select the top 10%, maybe 400 stocks. I then filter candidates by the following:
1. IBD Accumulation/Distribution rating above C-
2. The demand-supply rank above 45 (equates to stocks that trade above 0.6% of the float every day on average
3. Closing price above $15
4. Liquidity, stock trades above $10 million per day
5. Average of last two quarters EPS growth 25% or higher
6. Average sales growth over the previous two quarters greater than zero
7. Up/Down volume ratio at least 0.85 (50-day ratio of total volume on up days divided by total volume on down days)
8. Pre-tax margin of at least 16% or ROE at least 17%
9. Stock not undergoing an acquisition
10. Stock chart base count less than six
The process so far is 100% repeatable and automated (except base stage count). The filtered list produces about 60 stocks that are then manually inspected for fundamentals and charts patterns. I focus mostly on weekly interval charts using MarketSmith.
The inspection process checks that the stock is in an uptrend I then look to see if the stock is in a buyable basing pattern such as a cup with handle, double bottom, flat base, ascending base, high-tight flag, etc. I follow William J. O’Neil’s CANSLIM process defined in his book How to Make Money in Stocks when I analyze these stocks. I check that the bases look sound. The filter process defined above lets in a lot of stocks that I choose to drop from the list. I finally end up with a watch list that is maybe 10-20 stocks. I conduct this process over each weekend and upload the list either Sunday night or Monday morning. The manual review process takes about four hours.
I have a separate process for identifying short candidates; I look for stocks trading more than 1 million shares per day on average that have been past leading issues, usually identified as a long candidate long ago. They should have shown a topping pattern such as a head and shoulders top or failure of a late-stage base. I then check that the candidates are in a downtrend and find stocks that rally into resistance areas, usually 10-week or 40-week moving averages, where hopefully they stall and continue their downtrend.
The volume alert trigger process looks at the same stocks reviewed while producing the long watch list. I check that the closing price is trading in proximity to either the 50-day moving average or 10-day moving average. If so the symbol goes on the list. If you google “Pocket Pivot” and review material generated by Chris Kacher he describes the buying opportunity. We look for stocks bouncing off the 50-day or 10-day moving averages or up through these averages on high volume. High volume is defined as higher than any down-day volume during the prior 10-trading days. The volume trigger alert process attempts to identify these candidates in real-time by extrapolating real-time volume to end-of-day volume and comparing that volume with the minimum volume threshold. These stocks become highlighted in green throughout the trading day.
The process outlined above create the stocks that I place on my own watch list and share here.