Harry Domash's Winning Investing

Play By Momentum Rules

Given the uncertainties about when and how the pandemic ends and the status of the economy when that does happen, there is no way to predict to predict any given company’s sales and earnings in 2021 or even 2022.

Thus, whether you’re a growth investor or a value player, traditional stock selection strategies that depend on such forecasts are useless.

Yet, the stock market couldn’t care less. It just keeps going up. The S&P 500 gained 5.5% in July and is already up 2% this month.

But, most stocks aren’t participating in this rally. In fact, according to Forbes Magazine, only about one-third of S&P 500 stocks are up so far this year.

Bottom line, we’re in a momentum market. Stocks that have already moved up are your best bets for future gains, assuming that the market stays in rally mode.  

Along those lines, in a May tutorial, I described four such momentum plays that, in my view were ripe for continues future gains. From May 11 through August 6, those four stocks averaged a 24% gain compared to the S&P 500’s 14% return.

Encouraged by those numbers, today, I’ll describe how you could use the free and user-friendly finviz stock screener to produce your own list when you think the time is right. Also, at the end, I list the five stocks the screener turned up last Wednesday.

Momentum Stock Screen

Start at the finviz homepage (https:finviz.com), and then select Screener. Next, click on “All” to see the available stock selection filters. Then, use the associated dropdown to specify screening values for the filters that you want to use.

Start by using the Country filter to limit your list to U.S.-based stocks.

Hot Stocks

Using the Performance filter, Select “YTD +5%” to confine your list to stocks that have moved up in price at least five percent since December 31. Then, specify “Quarter +20%” using the “Performance 2” filter to isolate the strongest recent performers.

Finally, in this category, specify “Price Above SMA” using the “20-Day Simple Moving Average” filter (average price over last 20 trading days) to assure that passing stocks are still uptrending.

Minimize Risk

Next, to rule out risky smaller players, use the Market Cap filter and specify “+Mid” which limits your list to stocks with market-capitalizations (value of all outstanding shares) above $2 billion.

Also, because cheap stocks get that way because market players see problems ahead, use the Price filter to limit your list to stocks trading above $20 per share.

Follow Smart Money

Institutional buyers such as mutual funds have access to information that we’ll never see. Require “over 30%” Institutional Ownership to assure that these “wired in” players hold at least 30% of outstanding shares.

In a similar vein, specify “Over +5%” for Insider Transactions to assure that company executives, board members, and big shareholders are buying, not selling.

Ready to Run Screen

Here’s a link to the screen so that you can run it yourself: https://bit.ly/WI-Momentum

Five Stocks Passed

Here are the five stocks that passed these tests for me: when I ran it after the bell August 6. Artesian Partners Asset Management (APAM), Clearway Energy (CWEN),  Innovative Industrial Properties (IIPR), Overstock.com (OSTK, and TriNet Group (TNET).

Momentum plays work well until they don’t. Sell on any bad news such as big earnings or revenue miss, multiple analyst downgrades, etc.

published 8/7/20

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