Sunday, April 1, 2007

Screening for Winners From the First Quarter

Now that the first quarter of the year is over and done with, it is a good time to take a look back and see what stocks were breaking into new ground. One way to do this is to scan for stocks that are greater than $5 and were up at least "X%" over the past 66 days. As a simple example this scan will look for stocks that currently show an advance of greater that 20% since January 1,2007. A list of the 600 or so stocks that met this criteria can be viewed or downloaded at

With this list of stocks that performed well, we can then refine the search some more. One filter that is helpful is to eliminate stocks that do not have an average daily volume of at least 75,000 shares. In addition to making sure there is sufficient volume traded in the stocks we are looking at, this also eliminates about 1/3 of our original list.

Research Frontiers Inc.(REFR) is one of the stocks that was in the list filtered for volume. Since the stocks in our list are already up for the year more than 20%, it is important to look for charts that are in a consolidation pattern. REFR has formed a nice triangle pattern. This is one of the better patterns to scan for. The scan formula can be tricky, but it is worth the time in creating a good one. These patterns are some of the best to trade. When applying a couple simple formulas, triangle patterns can give you defined target areas as well as great stop loss areas to trade from.

Bolt Technology Corporation(BTJ)is another stock from the list. Its chart pattern is like many of the stocks in the oil industry. This is a nice example of a triangle pattern. A triangle pattern is basically a series of higher lows combined with a series of lower highs. The price contracts until one side has to break, and the stock breaks out of the triangle. There are four kinds of basic triangles.

2.Ascending(higher lows against a fixed resistance area)
3.Descending(Lower highs against a fixed support level)
4.Expanding(Higher highs and lower lows)

In writing a scan or filter for stocks with triangle patterns, it is important to determine the time frame. Since we are looking back at the first quarter of this year, our series of highs and lows does not have to go back very far. Other formulas can be written that filter for patterns on a weekly basis, these are great patterns for investors who don't watch positions every day. In either instance, we are looking for a stock that has a recent high that is less than the previous high, and a current low that is greater than a previous low.


In this basic example, HHV3(highest high value in the last 3 days) has to be less than HHV8(Highest high value in the last 8 days), and LLV3(lowest low value in the last 3 days) has to be greater than LLV8(lowest low value in the last 8 days). This would give a list of stocks that are forming crude but effective triangles over the past 2 weeks or 8 trading days. This is a very simple example; if interested in more detailed formulas, send an email with what software system you are working with.

The above chart of Dril-Quip Inc. is a great example of a series of triangles and how they serve as great areas to add to positions or initiate new ones.

Some sites to play around with filters and scans:


The new quarter has started and new money should come in from mutual funds and pensions this week. It should not be enough to cause a major rally, especially with the flood of earnings announcements that start in just about 2 weeks. Below are a couple charts to watch to get a handle on where we are and where things could go. There are no divergences in the Adv/dec averages in either the SPX or the Nasdaq Composite. This could change at any time. Goldman Sachs (GS) is also a good stock to watch, it seems to validate any market move if it follows with volume.

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