Computer Screening for Up Trend

If you follow a limited number of securities, a manual review of their charts is a feasible and perhaps practical way to monitor price trends. However, if you wish to scan the universe of listed stocks and funds, you have to use a computer to get the job done.

In the end, of course, one-by-one chart inspection is necessary to determine that whatever trend or price pattern you seek is in place.

Note that price action is just one dimension of investment decisions. You need to consider multiple dimensions, such as:

• the “story” - what the company or fund is all about, and the prospects that creates
• the financial health of the company (balance sheet, income and cash flow factors)
• the valuation level (multiples such a EV/EBITDA, P/S, P/E, Yield, etc.)
• the price behavior (current or prospective up trends being better than down trends for long positions)

For investors, as opposed to traders, price action and valuation levels are more about when to enter a security than what security you wish to own or why, which is more a function of the “story” and the financial health of the company.

Continuing with the price behavior dimension, let’s consider the search for short-term up trends. That may be helpful in finding stocks that are beginning a trend reversal process. Even though the market overall is still in a downward motion, there are individual stocks that have done quite well recently.

Here is an example rules-based screen that quantitatively identifies securities that may be in up trends. You could use different rules, of course, but this set of rules seems to produce pretty good results.

For the last market close, all listed stocks with…

• 20-day Simple Moving Average of Volume for today is greater than 100000
• 60-day Simple Moving Average of Close for today is greater than 1
• Daily Close for today is greater than Daily Close for yesterday
• Daily Close for today is greater than 5-day Simple Moving Average of Close for today
• 5-day Simple Moving Average of Close for today is greater than 20-day Simple Moving Average of Close for today
• 20-day Simple Moving Average of Close for today is greater than 50-day Simple Moving Average of Close for today
• 5-day Simple Moving Average of Close for 5 days ago is greater than 20-day Simple Moving Average of Close for 5 days ago
• 20-day Simple Moving Average of Close for 5 days ago is greater than 50-day Simple Moving Average of Close for 5 days ago
• 20-day Simple Moving Average of Close for 5 days ago is greater than 20-day Simple Moving Average of Close for 10 days ago
• 50-day Simple Moving Average of Close for 5 days ago is greater than 50-day Simple Moving Average of Close for 10 days ago
• 20-day Simple Moving Average of Close for 10 days ago is greater than 20-day Simple Moving Average of Close for 15 days ago
• 50-day Simple Moving Average of Close for 10 days ago is greater than 50-day Simple Moving Average of Close for 15 days ago
• 50-day Simple Moving Average of Close for 15 days ago is greater than 50-day Simple Moving Average of Close for 20 days ago

When this filter is run against the thousands of stocks and funds listed on the NYSE, NASDAQ and TSE, there are 263 that come up as potentially in a short-term up trend. If you would like to have the entire list, send us an email and we will pass it along to you.

There are certainly other filters that could be devised for the same general purposes, but this one seems to work fairly well by rendering a manageable number of prospects to consider.

One way to use such a list would be to see which stocks on your “shopping list” show up. Another would be to run that reduced list through a fundamental computer screen for the quantitative attributes you seek in a security. And, of course, you could just be looking for securities that are going up for whatever reason.

As with any computer screen, it just narrows the field to those securities that “might”, but may not, be suitable for your purposes. Additional inspection and review is always necessary.

Of the 263 securities that passed the filter as of the market close April 3rd, 8 are funds: CAF, DBB, EWT, EWZ, PTM, SMH, XRT, and XSD.

The 10 highest volume individual stocks are: MS, GLW, TSM, NVDA, PBR, GS, AAPL, TXN, FCX, MRVL.

Some of the charts show the securities pretty much flat, by just barely passing the filter criteria. However, some have impressive short-term upward slopes. Here are three funds and three individual stocks as examples of filter results:

Here is an example of a fund and of an individual stock among the thousands that did not pass the filter. Even though each has participated in the current rally, that has not been enough to cause their moving averages to meet the slope requirements of this particular filter.

Remember that moving averages are lagging indicators, and you must give up some of the early new trend to get moving average confirmation. There are other approaches that could catch a new trend at an earlier stage, but they have a higher rate of false signals. For most investors, catching a good long trend is the best option, and moving averages are generally good enough for that purpose.

We are not suggesting that being in a short-term up trend necessarily makes a security a good investment, or even a continuing good trade. Neither are we suggesting that a stock in a flat or down trend is a bad investment. This article merely illustrates a tool. Whether and how you use it, is entirely up to you.

Summary note - while some stocks have done quite well recently, the vast majority are not yet in an up trend.

Comments

[TERN:]

Thank you, Richard. Informative article.

Apr 15 01:14 AM