Monday, July 25, 2011

My Updated Stock Screening Criteria

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

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

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.