** These stocks also exhibited “Oversold Buy” signals under a separate Chaikin algorithm.In this section you will learn the basics of swing trading. When the screen was run on July 22 2019, the following stocks made the grade: This screen seems noteworthy in that it has shown efficacy at all ranges of sizes, although the mid- and smaller- sized subsets seem to hold better potential for home runs. But even beyond that, it often seems the large followings and exceptional availability of information about large-caps make market inefficiencies harder to identify and exploit. Some of this is attributable to test periods that include times when small-cap stocks were stronger in general. Many who are experienced in screening and other forms of quant work often notice that their models tend to be more successful among smaller stocks. Image from ClariFi, a subsidiary of S&P Global Market Intelligence author This personal stock market should be limited to a manageable (analyzable) number of stocks all of which conform to your investment goals, and a successful screen is designed such that the probability of identifying winners is greater than it is for the market as a whole.įigure 1 shows the quarterly difference in the average return of Russell 3000 stocks that appear in the screen versus the much, much larger group of Russell 3000 stocks that do not appear. We’re looking for a small personal (designer) stock market that is carved out of the larger market. The usefulness of a screen is determined by the extent to which it helps you identify stocks worthy of being evaluated. The stock price must be at least $10: This steers the result-set away from names that are likely to be less liquid and/or less appealing to institutions.A beta of at least 1, meaning the stock has not been habitually less volatile than the market, helps us in this regard. The other thing we don’t want is for the stock to stay where it is or bounce only a trivial amount. The other screening factors help us to assume the former rather than the latter.But having a beta no higher than 2-meaning the stock is not usually two or more times as volatile as the market-serves as another source of support.
First off, we would not want so see what we think of as an oversold “barrier” off of which we expect the stock to wind up being the first rest stop in what ultimately turns out to be a new and prolonged downward journey.
(It takes two to make a market, so we look for the weight of market opinion, not unanimity, which never exists). The same dynamic holds even if a different institution got in at a higher price sees the temporary peak as an opportunity to lighten up or exit. Such reductions in buying activity, not because anyone has soured on the stock but simply because a big investor that wanted in finished the process of getting in, can in and of itself result in a temporary softening of the price.īeyond that, someone who was already in sees the new temporary peak as an opportunity to take profits (not necessarily because that investor has turned bearish it may simply be a matter of cashing out of a winner to reallocate funds to something else). One sample set of circumstances that might produce an oversold condition within a bullish trend is the completion or winding down by investors (institutional for example) of buying programs many institutions establish exit positions gradually over time to avoid disrupting the market and getting less favorable prices. We may not always be able to explicitly identify the reasons. Sometimes the swings are relatively gentle, other times, they look wild.Īs with other market phenomenon, these happen for reasons. Sometimes the intervals are prolonged, other times they are brief. Trends are really combinations of many alternating up and down intervals. Surely you’ve noticed that no matter how consistent a stock is from day to day, its trend is never completely smooth.