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I've mentioned this method of finding strong stocks to a few people
before, but I've never posted it--so here it is.
As most of you are aware, we now have an ETF for almost every major
sector of the market. These ETFs have a basket of stocks that make
them up.
Create a file with all of the sector ETFs in it. Then create separate
files for each major sector ETF you're interested in that have the
securites that make up that ETF in it.
Scan the ETF sector files everyday and compare their performance to
the general market's performance. That's very easy to do. In most
cases, you can simply eyeball it. The hot sectors are obvious.
Pick a couple of sectors that are moving. Open the files with the
securities that make up that specific sector. You will find that 20%
of the stocks in that ETF account for 80% of the ETFs movement. Those
are the stocks that are not only out performing the market, they are
out performing the sector.
Why is this better than scanning for all stocks that have had three
days of higher highs and three days of higher lows---or whatever.
It involves trend consistency. Random scanning dredges up stocks that
are doing okay, but their sectors may not be in favor, which means
their upward trend is unreliable.
With the ETF method, the ETF will genearlly show signs of weakening
before the best performing stocks break down within that ETF.
It takes some work to setup, but once the setup is done, it's a great
long term tool for stock picking.
You can find the make-up of ETFs on the net. Sometimes you can find
it on the ETFs home page or from people like Valueline. Don't email
me asking me to provide you with a list of ETFs, the stocks in them,
which ones are the best---figure it for yourself. The thinking and
looking will do you some good.
I'm talking about sector ETFs. This doesn't work well with say the
Russell 3000. I can tell you the stocks that make up the Russell
3000, can you tell me how many there are in that ETF?
This technique works well on the short side--I think. Maybe it's,
this technique works well with short people. I'll look it up and get
back to you.
JO
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