July 2nd, 2014
It’s been quite some time since I wrote something for the public side of Stock Chartist but it sometimes the market feels like the “good ole” times so it gives me the urge to put some thoughts down again and share them with all of you. By the “good ole” days, I’m referring to the beginning of the bull market, like July 23, 2009 and March 2, 2012 when I wrote “Stock Picking Now Feels Like Shooting Fish in a Barrel“ and Part 2, respectively.
In the early stages of the bull market, it almost didn’t matter which stock was picked, it was just more important to put money to work. If you happened to pick a stinker, you cut your losses quickly and rolled the money into something else that worked. Unbelievably, the situation is almost the same today (when looking at the charts) even though it’s been five years since the bull market began on March 9, 2009.
Back in 2006-7 I was looking to save some trees and reduce my overhead by eliminating subscription, like Investors Business Daily. While I liked many of their concepts I found their approach to market timing to be weak; it seemed like they followed Cramer’s “there’s-always-a-bull-market-out-there-somewhere” principal. I’d moved beyond that by having developed my own Market Momentum Meter approach to market timing. But when it came to stock picking, there was nothing wrong with their “Stocks on the Move” approach. I was able to replicate the factors IBD used into one of the automatic scans in my charting software (Worden Bros. Telechart).
Those two posts in 2009 and 2012 were based on My “Stocks on the Move Scan” (click on the 2009 article like above for a complete description of the scan), the same scan that I use today. Scans are used to filter out from the universe of over 4000 stocks, those stocks that meet various user defined criteria. Scan aren’t “silver bullets”, they don’t give you the complete and final answer but they do present a place to begin. Depending how precise the criteria, scans can screen out anywhere from 50 to 300 stocks that meet the parameters.
As a matter of fact, over the past 4 weeks, the Stocks on the Move scan has flagged about 300 stocks that fit its criteria. I’ve taken the stocks that are screened each week and perused these stocks’ charts to further whittled the list to arrive at 92 stocks that looked like they had or were about ready to breakout the topside of various chart patterns. We assumed with some confidence that they will likely cross those upper resistance boundaries because the total market as measured by the all the major indices (Dow-30, the S&P-500, the Russell-2000 and the NASDAQ composite) had or were about to make new highs.
I posted the 92 stocks in Watchlists on the members-only side of the Stock Chartist blog. Since posting them, I’ve been swapping the underperforming or lagging stocks in my Portfolio for the new names on those Watchlists. With over 90 stocks from which to pick, I knew there was a high probability that most would wind up being winners, winners big enough compensate for the few selected that might turn out to be losers or laggards.
Here’s the scorecard:
Of the 92 stock candidates for selection, 3 out of 4 generate gains and only 25% a loss (only 2 had losses of 8%). But avoiding losses isn’t sufficient. Of the stocks in the list, 63% outperformed the S&P 500 Index from the time they were added to the list and their average gain was 4.4 percentage points better than the S&P 500 over the same period. Of the 37% that underperformed, their losses so far were 2.6% under the S&P 500.
If you had selected a basket of the stocks generated by this scan, the odds are that you would have outperformed the S&P 500 over the same period. Get your shopping cart ready, the shopping is easy, fun and can be profitable.