Please can you give me an indication of how you scan for stocks? Are you looking for volume change relative to prior days, earnings growth, minimum average volume etc? I would just like to know the base criteria on how stocks make it in to your shortlist before you scan the charts to pick out the best.

One thing we always like to do is scan for stocks that are approaching a 52-week or greater high. This helps us look at stocks that are outperforming the market. We like these because they are doing something right or are being favored for one reason or another. Another important point is that in an improving market, stocks that are moving to new highs tend to be leaders and continue to make new highs. We want to catch them as they complete their bases and this is a good way to get an idea of the stocks doing that as well as what sectors are performing well. You can vary the criteria to get stocks of a certain average daily volume (we look at several, e.g., >100K daily average, >75K, >1M, to give us an idea if just what is moving). We also look at certain P/E ranges as a holdover from the downtrend when ‘value’ stocks were in favor. This is good because it also gives you an idea if there is any ongoing bias or not; in a growth market P/E’s are not as big an issue with investors, and seeing that change is useful.

We can then cross-reference those stocks with some economic data such as earnings growth (+20% or more year/year) and relative strength. This helps narrow the search. After that we can then look at what some of the cream of the crop are.

That does not replace some of the other more difficult aspects. As we saw with the chip stocks and other tech stocks coming off the lows, it was not that they were moving to highs. Now we picked up the stronger leaders easily, but the chips were building off their lows and it took just some hard looks to see what stocks were under real accumulation and were building higher lows, breaking key resistance, etc. Unfortunately scans for these are harder to develop.