Screening Criteria To Find Hot Momentum Stocks | Investing With IBD

TL;DR

Dr. Stocks demonstrates how to create a momentum screen using Market Smith, focusing on factors such as price and volume, EPS growth, price-to-sales ratio, and technical indicators.

Transcript

why don't we go ahead and uh kind of look at this momentum idea these these factors that you were looking at and uh let's build a screen and see what comes up uh so I'm going to turn it over to Dr stocks here uh and he's going to use Market Smith to kind of create this screen uh so tell us um tell us how you do it well thank you J and I will be bui... Read More

Key Insights

• 🧡 Stocks in the price range of $15 to $40 per share tend to show the greatest momentum and are the sweet spot for trading.
• 🤨 EPS growth of at least 5% signals that a company is performing well and raising its earnings estimates.
• 🥳 A price-to-sales ratio below 1.0 suggests that a stock has room to grow relative to its revenue.
• 💁 The relative strength rating and SMR rating provide information about a stock's momentum and the quality of its management.
• 🤩 Pullbacks to key technical levels, such as previous pivot highs or moving averages, can present good entry opportunities.
• 📈 Trading with the trend and using technical indicators like stochastics can help identify potential buy and sell signals.
• 💻 Regularly reviewing and adjusting the screen criteria can ensure that stocks selected continue to align with the momentum strategy.

Questions & Answers

Q: What factors does Dr. Stocks consider when building a momentum screen?

Dr. Stocks looks at factors such as stock price, volume, EPS growth, price-to-sales ratio, relative strength rating, and the SMR rating.

Q: How does Dr. Stocks determine when to sell a stock?

Dr. Stocks suggests selling a stock when it reaches the top of the regression channel or when its price-to-sales ratio exceeds 1.0. Additionally, re-evaluating the screen criteria regularly can help identify when a stock no longer fits the momentum strategy.

Q: Does the momentum screen only focus on certain sectors?

The momentum screen can include stocks from various sectors, including energy, retail, and consumer cyclical stocks. The screen aims to identify stocks that are currently in favor with the market.

Q: What technical indicator does Dr. Stocks use to confirm the pullback setup?

Dr. Stocks uses the stochastics indicator and looks for values below 20, indicating that the stock is trading near the lower end of its range.

Summary & Key Takeaways

• Dr. Stocks uses Market Smith to build a momentum screen, starting with a minimum stock price of $15 and a 50-day average volume of 500,000 shares per day.

• The screen filters for stocks with EPS growth of at least 5%, a price-to-sales ratio of 1.0 or lower, and a relative strength rating of 80 or higher.

• Dr. Stocks examines two stocks that passed the screen criteria: Liberty Energy and Celestica.