BUYING AND SCREENING STRATEGY

We use both daily and weekly screens to provide members with possible investment opportunities. While they may seem equal in weight, the weekly screen is the most important feature on the website. Daily screens look at the current day’s action and screen out stocks that are making new 52-week highs, building solid patterns or are breaking out from a pivot point. Stock that have already broken out or have made past daily and weekly screens can continue to make the daily screen even if it sits above the pivot point. We must continue to track quality stocks as they pass crucial buy points because many members decided to place positions in these stocks. Daily screens have the tendency to present many different stocks but only the best of these stocks will go on to make a weekly screen.

Our weekly screens serve as a filter to the “noise” that daily screens may and can produce. As noted in many places on this site, the strongest buy candidates are the stocks that make continuous weekly screens. Below, we have outlined the details process that goes into our buying strategy and our daily and weekly screens. First we will outline the process that we use to make both a daily and weekly screen. Further down the page, we explain how the buying strategy works, based on the information that we extract using the screens. We advise all members to use our process as a guideline to develop your own system that compliments your trading style, whether that be short term, longer term or a combination of both.

Daily and Weekly Screen Details:
One big secret goes into our screening methods: There is no secret and anyone can succeed to build a profitable system. In today’s world, the internet is overloaded with financial information related to companies and their stocks. The toughest part of researching the stock market is weeding through pages of unnecessary data offered by multiple people, blogs, investors, firms and institutions. Open a browser and type the words “stock market” into Google and you will get approximately 34,000,000 results. Now type in the words “stock analysis” and you will get over 14 million responses. Where is one to begin?

All investors must start their search by looking for stocks with superior fundamentals. After fundamentals are established, look to see if this particular stock is in good company and by this I mean a strong industry group. Similar stocks historically move in the same direction (this is fact not opinion). This is not to say that every stock in the industry group will move higher or lower because a sister stock is going in that direction (a generalization rule of course). After the industry group has been confirmed strong or weak, determine if the overall market is in a specific trend (up, down or sideways).

To complete the steps above, we start by using the custom screen wizard offered through Daily Graphs (an affiliate company of IBD). Using this screen, we narrow down our first list using relative strength (RS) and earnings per share (EPS) ratings. In poor or down trending markets, we cut out all stocks that have an RS and EPS rating lower than 70 (based on the IBD scale of 1-99). In up-trending or bull markets, we raise the minimum criteria to 75 and then to 80 for both RS and EPS ratings. Our next step is to eliminate all stocks that are not within 5% of their 52 week highs. We don’t like to invest in stocks that contain great amount of possible overhead resistance. After this list is developed, we run another screen that gives us the stocks with superior RS and EPS ratings that are making new 52-week highs. Finally, we use Investors Business Daily (the print newspaper) and/or our Daily Graphs subscription and locate the strongest industry groups and sectors for the day. Remember that the strongest stocks move in groups, not individually.

By performing the tasks above, we will get a list of about 50-150 stocks that meet the proper fundamental criteria during poor markets or sideways markets. During bull markets, these screens will return several hundred stocks to almost 1000 stocks per day. This is one of the most powerful indicators in the market today, a method that we have used since day one. When 1000 stocks are making these daily screens, we know we are in the midst of a strong bull market. On the other hand, when we see less than 100 stocks making this daily screens, we know that we are going sideways, in a correction or heading towards a bear market.

When we publish the daily screens Monday through Thursday, using the tools above is as far as we go with the initial fundamental criteria. When the week draws to a close and we start to produce a weekly screen, our most important screen, we take the fundamental analysis one step further by studying the raw numbers (key categories are listed at the bottom of this page).

We use some key statistical sites such as Vickers research reports to assess institutional holdings and insider buying. Daily Graphs can be used for these institutional numbers but we prefer Vickers because it allows us to see the exact money manager or mutual fund that owns the stock with the exact amount of shares owned, when they were purchased, the percentage of their total portfolio and more. We then browse over detailed fundamental reports that contain key ratios.

Ratios:
Net income
Past earnings
Future estimated earnings
Revenues

Additional key numbers:
ROE
PEG ratio
EPS estimates
Valuations
Revenues (cross referencing the numbers from Vickers)

Final Fundamental Analysis:
Shares outstanding
Current float
52-week ranges
Previous year highs and lows
Cash-flow
Assets
Profit margins

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