Monday, July 25, 2011

My Updated Stock Screening Criteria

Tags
After the new edition of the IBD comes out each night, I start my stock screening. I get my stocks almost exclusively from the Stocks on the Move column every night. I just copy down the ticker symbols from the stocks above the line on both the NYSE and the NASDAQ. This should also tell you that I don't look at any over the counter stocks - only NYSE and NASDAQ. I then take those stock symbols and put them in the My Stocks List of investors.com.

I do this because I am looking for one particular type of stock -- one that institutional investors are buying. This buying shows up in stocks that have large increases in price on heavy volume.

Once I put the stocks in my list, I then screen them further as follows:
  • Volume - I want to see at least 100,000 shares traded daily. You can find the volume number under the price and volume.
  • Earnings Per Share % Change (Latest Quarter) - I want stocks over 25%. You can find this under the fundamentals tab.
  • Earnings Per Share % Change (Prior Quarter) - I want stocks over 25%.
  • Sales % Change (Latest Quarter) - Again stocks over 25%.
  • Earnings Per Share Estimated % Change (Current quarter) - Over 25%
  • Earnings Per Share Estimated % Change (Current year) - Over 25%
  • Composite Rating - Over 70. Under the SmartSelect ratings
  • EPS Rating - Over 70
  • RS Rating - Over 70
  • SMR Rating - A, B, or C
  • Accumulation/Distribution Rating - A, B, or C
  • Group Relative Strength - A, B, or C


I have recently lowered my stock screening criteria in a couple of areas so that I could look at more stocks on a daily basis. The first is in the Composite, EPS and RS ratings. I will now go to as low as 70. With the other SmartSelect ratings, I also now include stocks with a "C" rating. I did this so that I could look at more stocks on a daily basis. My thinking is that I might be able to catch a stock a little sooner than I could before. I also am looking for stocks with stellar earnings and sales as opposed to stellar ratings.

Once I have the list compiled, I like to sort it by price percentage change to see the best stocks in the stock market today. I then move on to looking at particular buy points or set ups in my stock market investing strategy.

Usually, I then post my watch list on my twitter feed which can be found in the sidebar.

Why Is The Stock Market Down Today

When you look at the market indexes each day, at some point you will ask yourself why is the stock market down today? This question will lead you to look at the major news sources for an answer. Over time, they will give you numerous answers as to what caused the market to close lower. Today for example, the market is uneasy about the "debt-ceiling" in the United States and that Moody's downgraded Greece's credit rating. On other days, earnings reports might have come in lower than expected. The truth is that while there will be truth in what they say because that was the general news for the day, the real reasons are really probably unclear and to be honest with you don't really matter to you as you try and ascertain the general market direction each day.

All you really care about is what the market indexes tell you happened -- not what the "general opinion" is as to why it happened. You'll first want to review each index every day. Those indexes are the S&P 500, the Dow Jones Industrial Average (DJIA), the New York Stock Exchange (NYSE) and the NASDAQ. You'll want to look at each index and figure out whether it closed higher or lower than the previous day. After that, you'll also want to see whether volume was higher or lower than the previous day. When you do this, you'll discover one of the four following situations.


  • A higher close on higher volume - This means that there were more shares of stock bought than sold and it pushed the price higher. This is known as an accumulation day. This is what you really want to see.

  • A higher close on lower volume - This means that less shares of stock were sold and prices did increase but is more of a stalling action. While this will happen, it's not really representative of a market under accumulation and not the ideal close you'd like to see.

  • A lower close on higher volume - This means that more shares of stock were sold than bought and it pushed prices lower. This is known as a distribution day. To much distribution isn't a positive sign for the overall market direction.

  • A lower close on lower volume - This means that less shares of stock were sold than bought and prices fell. This is a neutral action and what you would expect to see when there is less than demand.


When you look at the market each day, you don't really care "why" the market went down. You only care about whether the market was under accumulation or distribution. You are concerned about this because you want to only invest in a market under accumulation or an uptrend and not under distribution or downtrend.

As you learn to do this, you can just read the IBD Big Picture column and let them tell you what happened or you can do what I suggest and that is figure out what happened on your own and confirm it with what the IBD editors think. Over time, you'll find that you can get a handle on what happened instead of why.

Let's use today as an example:


  • S&P 500 - The index closed at lower at 1,337.43 or .56% lower than yesterday. Volume on the NYSE was 3.9 percent higher than the previous day. Since this is more than .2% decline on higher volume, this is a distribution day for the S%P 500.

  • DJIA - The index closed lower at 12,592.80 or .70 percent lower than yesterday. The NYSE volume was higher as we have already said and so this also represents a distribution day on the Dow as well.

  • NYSE - The index closed lower at 8,357,57 or .60 percent lower than yesterday. Volume was higher as discussed and so the NYSE also suffered a distribution day.

  • NASDAQ - The index closed lower at 2,482.80 or .56 percent lower than yesterday. Volume on the NASDAQ also closed even from the day before. Because it is neither higher or lower. It is not a distribution day.


We know from today's market action that the S&P 500, the DJIA and NYSE all suffered distribution days while the NASDAQ did not. This information in and of itself doesn't tell you specifically why the stock market was down today, but it does tell you a more critical piece of the puzzle and that is that it was under distribution. Enough distribution days and it will change the market outlook. Because three out of four stocks follow the trend, and because the IBD currently has several distribution days chocked up for the indexes already, I'm expecting the market outlook might change today to market uptrend under pressure.

This would mean that I wouldn't want to make any new stock purchases and watch the stocks I am in closely. Knowing what action to take with my stock market investing program is much more important than knowing why the stock market today went up or down.

Saturday, July 2, 2011

Which Shares To Buy Today

Tags
I've been sitting on the sidelines and it's time to see which shares to buy today because the IBD changed the current outlook to market in uptrend. So, I took some time to update my watchlist and ended up with the following stocks on it: IPGP CPX FCFS FOSL CPO CSL GSM SPRD WYNN AH GDI LULU NFLX PRGO TPX ILMN MNTA. Personally, I wasn't happy with many of the chart patterns but I've opted to buy shares in FOSL. While I placed the market order for today it won't be placed until Tuesday morning when the market opens. My guess is that the stock's price will fall at the initial market open. Mainly because I expect a short trading week with a lot of people on vacation. This will dry up demand and hence the price will fall.

FOSL traded at $121.96 on Friday and is extended from a proper base. Fundamentally, the stock is strong as the watchmaker intends to open a bunch more stores this year. It's part of the retail industry group which continues to do well in the down economy we have been experiencing. I find this surprising. The company is managed well with earnings, sales and estimated earnings over 25% each.

After considerable thought about which shares to buy today, I opted to pick up shares of FOSL at the market open



The IBD composite ratings are also strong. All over over 80 and A or B.

Last week was a strong week for the market before the holiday. Let's hope it continues.

My price targets for shares of this stock are for a 25% gain. The stock would need to reach a high of $152.45. My stop limit is set for 8% below my buy in. We'll see what that figures out to be on Tuesday.

I think that chances are good I could get stopped out on buying these shares.

I'm not convinced that we are in a strong market uptrend. There's a lot ahead of us with the negotiations of the debt ceiling coming this month.

Based on past experience, I've often thought that I should put my buy order for shares in after 10am. But I've continued to stick to my rule of making all of my decisions at the market close and before the market opens.

I'd love to hear what you are buying shares in. Let me know if you are entering the market as well.

Good luck with your stock market investing.

Wednesday, May 18, 2011

How To Build Your Own List Of Stocks To Buy Today Using Investors.comAnd Their eTables Service

Tags
I wanted to spend some time talking about how to build your very own list of potential stocks to buy using the tools at investors.com. I started from scratch building a watch list on Monday to document the exact steps I take to build my list. The idea behind building a list of stocks you might consider buying is to reduce the number of stocks that you need to focus on at any given time. There are thousands of stocks to choose from and it's impossible to look at all of them every day. To achieve this purpose, you use stock screens to whittle down the number to something that is more manageable. The first screen I use is by index. I only look at stocks on the NYSE and the NASDAQ. I recommend that you do the same.

From there, here's what you'll need:

  • A subscription to Investor's Business Daily. I personally subscribe to the eIBD which is the electronic version of the paper. This is awesome because you have the paper available each night and don't have to wait until the next morning.

  • A subscription to the eTables premium service on investors.com. I recommend a subscription to eTables because you can download the IBD 50 Index, the IBD New America Index, the IBD 85-85 Index, the IBD Big Cap 20 and the Main Tables to a spreadsheet.The first thing that I did was log into investors.com and go into my eTables. Inside, there's a section that is called Main Tables. I downloaded that list of stocks to a spreadsheet so I could cut and paste the stock symbols and put them into my stock lists at investors.com. You can only put in 50 at a time, so since there are about 300 stocks in the main tables, you have to do these steps a handful of times to get through them all.

In case you don't know, the main tables are the list of the top 300 or so stocks based on the Smart Select Composite rating that IBD uses. It is basically like the IBD 200 only with more stocks.

With the My Stock List tool, you have the ability to sort your stocks and see information on:

  • Price & Volume

  • Fundamentals

  • Smart Select

I took the first 50 stock symbols and put them in a my stock list that I named "research". I start my search by reviewing the price and volume. I sort the stocks by price and I eliminate all stocks that are below $15 and the I sort it by volume and eliminate all stocks that have under 100,000 shares in trading volume.

Then I move onto the Smart Select ratings and review the Composite rating, EPS rating, RS rating and only keep those that are 80 or better. After that, I only keep stocks that are B- or better in the SMR rating, Acc/Dist rating and in Group Relative strength.

Once I have done that, I then move onto the fundamentals section and only keep stocks that are over 25% in EPS % Change (Latest Quarter), EPS % Change (Prior Quarter), Sales % change (latest quarter), EPS estimated % change (current quarter) and EPS estimated % change (current year).

I then repeat this process until I have looked at all of the stocks. As I go through each set of stocks, I put the stocks that made the cut into another my stock lists that I named Watch List.

The next step for me after I do that is to identify those stocks with less than 100 million in float. I find this information by clicking the chart icon and it's on the top of the chart.

The stocks that are left are the stocks that I might potentially buy but only if they are at proper buy points and the market is in a confirmed uptrend. It's important to remember that if a stock appears on my list it doesn't mean that I should rush out and buy it. It just reduces the number of stocks I need to keep an eye on. The next step in the process is to look at a chart of each of those stocks to identify a proper buy point. I'll talk more about that in my next post on Stock Market Investing Today.

Creating a list of stocks for the first time is just the first step in maintaining an inventory of great stocks. Your list of stocks is only as good as you make it. That's why you'll want to also make sure to:

  • Commit to reviewing your list every day. Stocks are dynamic and they change daily. An out of date list will not serve you well.

  • Add new stocks to the list. My main source of new stocks for my list on a daily basis will be from the Stocks on the Move section and on a weekly basis from the Main Tables.

  • Prune stocks from the list on a daily basis that fail to meet the initial threshold it took to get on the list.

  • If the list gets two big, either tighten the criteria of set a limit of 20 stocks depending on time available.

So that's how I find potential stocks to buy down the road. I think you'll find that managing a watch list will be very important to your investment success and by using the tools at investors.com, you'll be way ahead of the game.

Monday, May 16, 2011

How To Use The Big Picture Column In The Investors Business Daily

Tags
Well, I've taken a few months off from writing and figured that I would start things back up by talking about how to use "The Big Picture" column in the Investor's Business Daily. Your first step each day should be to check the general market direction and you can do that by reviewing The Big Picture column and it's main feature - the "Market Pulse". The thing you really want to know is what the editors of the paper think the current outlook is based on the CANSLIM investment strategy.

There are three outlooks in the Market Pulse section. They are:

  1. Market in correction

  2. Uptrend under pressure

  3. Market in confirmed uptrend

Investor's Business Daily suggest that you use this as a stoplight system with regard to whether you should be invested in the market. The green light is market in confirmed uptrend. Yellow is uptrend under pressure. Finally, the red light would be market in correction. Just like when you are driving, pay attention to the traffic signals. Three out of four stocks follow the market trend. Why fight the market? Just go on green, be cautious on yellow and stop on red.

When the market is in a confirmed uptrend, you want to keep an eye on distribution days. Distribution days are when the market closes down in price on higher volume. As these days add up, the market pulse keeps tabs of the number of days each index has tallied in the confirmed uptrend. During this time period, the CANSLIM strategy recommends that you be actively investing.

When the market uptrend is under pressure, you want to keep an eye on whether the indexes erase the distribution days that have piled up and be ready to sell your current holdings.

When the market is in correction, you want to watch for an attempted rally and a follow through day a few days later. When the market is in a correction, it's a good idea to liquidate your holdings if your stock shows signs of weakness.

While the Market Pulse gives you a snapshot of the current outlook, it also gives you a summary of the days action and leaders up or down in volume. The rest of the column provides a summary of what happened to the indexes for the day.

For me personally, I typically review the major indexes each day to see what I thought happened and formulate my own summary of what happened. Then, after the paper comes out, I confirm what I thought with what the editors say.

I also watch the IBD TV Market Wrap to get a feel for what the market is doing.

Start everyday by reading "The Big Picture" column. Even if you only look at the current outlook, you will be way ahead of most investors by knowing what the overall trend of the market is and that's the biggest part of the battle.