Try This Scan

One of the most common questions I get from people is “How do you scan
for stocks to find potential buy and short candidates?”

I’m going to break this up into two parts. Today I will talk about finding
intermediate-term candidates. Next week I will discuss some ideas for finding
short-term trading candidates.

There is no big secret to finding tradeable intermediate-term stocks. It is
simply a matter of hard work and looking through a lot of charts. Those who
attended the 2001 TradingMarkets conference may recall that Tim Truenbach gave
an excellent presentation on just this topic. The scans I run are pretty broad-based.
I prefer broad based scans because I like looking at a lot of charts. I believe
it helps to give me a better feel for the market.

The first thing you need to decide is how many charts you can look at in what
you consider to be a “reasonable” amount of time. I have a few different
routines. My weekend routine typically takes about 6 hours (including fundamental
research), and my nightly routine takes about 2 hours.

I go through over 1000 charts each weekend, and about 300-400 each night. I’m
pretty obsessive about it. That’s when I make my money, though. The trading
is the easy part. Trading is just a matter of executing the game plan. All the
real thinking happens when I’m doing my research.

There are many scanning programs out there, and perhaps some day I will do a
review of a few of them. One that is available to all of you is the TradingMarkets’
stock scanner, which I have found to be an excellent tool.

If you want to look for ideal candidates, you might run a scan with the following
filters (for longs):

Closing Price>=8

Closing Price>200 Day MA

I just ran this scan and it returned 124 stocks — a number that should
be reasonable for anyone.

If you wanted to expand your scan a little bit, then perhaps you could lower
the EPS and RS requirements to 75. This would increase the number to 187 stocks
— a little more onerous, but not completely unreasonable.

You could also eliminate the 12 mo RS requirement, and instead use the 6 or
3 mo RS. This will duplicate many stocks, but you’ll likely find a few
that have more recently come to life.

Once you have the list it’s just a matter of quickly running through
them. I would suggest that you show both daily and weekly charts on your screen
when you flip through the list of stocks. By just looking at one time frame
or the other there is a lot that could be missed. For purposes of speed I like
to simply mark down the stocks that look interesting to me and then go back
and research them in more detail later. I find it easier than researching each
stock as it comes across my screen.

Once you have completed your work on the long side, don’t forget about
the shorts. In an environment such as this the short side will be much easier
to look at, since there are significantly fewer candidates. A little over a
year ago was a different story. A sample set of criteria that could be used
for shorts might be:

Closing Price>=8

EPR<=40 RS (12 mo)<=40 Closing Price<50 Day MA Closing Price<200 Day MA

This scan, although a little broader with regards to EPS and RS currently only
returns 99 stocks. I normally suggest that people increase the volume criteria
for the short side. Due to the uptick rule it can many times be difficult to
get a good fill if you are trying to short low-volume stocks. Also, shorts tend
to be a bit more volatile, and you want the liquidity to be there if you need
to cover.

Feel free to contact me with any questions you may have.

Good trading,

Rob Hanna

robhanna@rcn.com