Isolate Stocks with a Finviz Stock Screen
Having a sector to focus on greatly reduces the number of stocks to look at. Also, by focusing on the top performing sector across different time frames we are more likely to find outperforming stocks. This is because the sector as a whole is outperforming the broader market (the other sectors).
Next, we want to find the strongest stocks within that strong sector. This is accomplished through using the Finviz stock screener which is accessed via the Screener tab on Finviz.com. On the screener there are three tabs: descriptive, fundamental and technical. For this screen, we only input descriptive and technical criteria. If you wish to filter stocks further using fundamental data, then you may do so. (For related reading, see Getting To Know Stock Screeners.)
Figure 4. Screener Tab; Source: Finviz
On the Descriptive tab, we add filters to narrow down the world of stocks we want to focus on. Simple ways to filter out stocks is by Market Cap, Average Volume, Price and of course, Sector. Figure 5 shows the Descriptive filters.
Figure 5 - Descriptive Criteria; Source: Finviz - Screener
Descriptive parameters can be tinkered with, to narrow down the number of stocks on the list and provide us with the type of stocks which suit our personal preferences, such as volume or price. By using +Mid for Market Cap, we are looking for stocks that have over $2 billion in market Cap. By using Over 1M for Average Volume, we receive stocks which do more than one million shares in daily average volume. The Sector we want to filter within is whatever sector we isolated in step one. By putting over $5 for Price, we receive stocks that are over $5. (For related reading, see How To Use Volume To Improve Your Trading.) Changing any of these variables greatly impacts the number of stocks received. But we are not done yet, as we can still add technical criteria. Click the Technical tab to add technical filters to the stock screen.
The easiest way to filter on a technical basis is by using the Performance screens. From step one, we have an idea of how the sectors have performance (percentage terms) over the time frames viewed. If the sector as a whole was up 10.2% over the last three months, the strongest stocks in the sector will have been up more than that. Therefore, to isolate the strongest stocks, we input a performance criterion greater than the sector average, such as +20% over the last quarter (three months). We also do the same for the weekly or monthly time frames using Performance 2 (please note these numbers will vary based on recent performance, and are only examples).
Figure 6 - Technical Performance Filter (partial list); Source: Finviz Screener
There are more technical filters available to further narrow the list. By adjusting the descriptive and technical filters a small list of stocks can be produced, strive to get less than ten.
Pick Stocks With Relative Strength From the List
Using the Finviz stock screener, we have reduced the number of available stocks to a handful of the strongest stocks in the market, which also have volume and are in the price range we want. But just because a stock is on this list, doesn't necessarily mean we will want to go out and buy it. Here is a where a bit of manual work comes in. (For related reading, see How Investors Can Screen For Stock Ideas.)
We want to look at a chart of each stock on our list to find one, or a few, we can trade. By simply hovering the cursor over the stock symbol in the list, provided by the screen, a stock chart will pop up. Look for stocks with a rhythmic trend higher and avoid stocks which have big gaps and lots of sideways periods. Clicking on a symbol will bring up a full chart.
If an index, such as the S&P 500, had a pullback recently look for stocks which did not move down when that occurred, or move down much less than the major index. This is a sign of relative strength and these are the stock we want to own.
Figure 7 and 8 demonstrate the type of market action of a stock which has been, and is likely to continue, outperforming in the short-term (over the next month). Figure 7 show a chart of the S&P 500 SPDRs ETF and Figure 8 shows a chart of TJX Department Stores.
Figure 7 - S&P 500 SPDRs; Source: Finviz
Now look at Figure 8. Notice that on the most recent pullback (right hand side of chart) TJX pulled back less and then rallied more aggressively than SPY (market). This is a sign of strength and a stock which is likely to continue to outperform. Isolate stocks with similar patterns from the screened list. (For related reading, see How To Pick A Stock.)
Figure 8. TJX; Source: Finviz
Note that if the overall market drops, these stocks may perform relatively well, but may not necessarily produce a profit. If the stock stops exhibiting relative strength compared to the broader market, it is time to get out and redo the screen if market conditions are still favorable.
Finding stocks which are likely to continue to be big gainers should be a task reserved for bull markets. Isolate the strongest sector and then filter down to a handful of stocks. Go through the individual stocks to find stocks, which are moving in rhythmic uptrends and have exhibited relative strength to the broader market recently. These are the stocks likely to outperform over the next month.(For related reading, see Momentum And The Relative Strength Index.)
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