Fundamental Screens and Scans

I have been asked numerous times to shed some light on the actual fundamental screens I use to come up with the stocks I research on a daily basis. As promised in a post in April, How to Create a Successful Stock Watch List, I will now give you further detail on my fundamental screens.

As many of you know, my main tool is the Daily Graphs Custom Screen Wizard which is owned by William O’Neil & Co. Incorporated. You can get a trial subscription for 7-days on their main site but I would wait until they offer the trial for free (they do this several times per year). The screener does cost $45 per month which may sound high for one tool but it does the job for the stocks I am seeking.

I also use several screens though my brokerage account and the scan engine through stockcharts.com. It has a basic user interface and an advanced user interface for investors that can handle some basic programming. These screens locate stocks based on specific technical patterns which help me from time to time but I prefer fundamental screens to find the stocks I would like to view with my own eyes. I perform my own technical research as it allows me stay in-tune with the market on a daily and weekly basis. I can flow with the market by scanning hundreds of charts every night after the close.

Now I will disclose the top fundamental screens I use on the Custom Screen Wizard. EPS and RS ratings are based on a fundamental system created by IBD that I trust. To learn more about the EPS and RS ratings, please visit investors.com.

Please understand that I am always actively scanning these screens and some come-into favor and then fall-out of favor as time moves on. For example, the screen that locates quality stocks making new 52-week highs is best used when a market has just completed a bottom and a new bull-run or up-trend is starting to develop. This screen is less important near the end of a strong bull run as many of the stocks making new highs at this point in time are exhausted. We will see more failed breakout attempts, reversals and late stage bases so the odds are no longer in favor of this screen.

When scanning these screens, I will present the stocks in descending order starting with the day’s largest price change and occasionally starting with the day’s largest volume change versus 50-day moving average.

1. Quality Stocks within 10% of the 200-day Moving Average
The first screen I will present has been my most successful over the past six to twelve months and has been responsible for finding some of my best risk-to-reward setups:

  • Earnings Per Share (EPS) Rating: From 70 to 99
  • Relative Price Strength (RS) Rating: From 70 to 99
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100
  • Current Price % Above or Below 200-Day Moving Average: From -5 to 10

2. Quality Stocks that are trading within 15% of 52-week Highs
This screen is great for finding high quality winners that are currently consolidating from recent highs and are now offering entry points for accumulating shares:

  • Earnings Per Share (EPS) Rating: From 60 to 99
  • Relative Price Strength (RS) Rating: From 60 to 99
  • Percentage price is below 52-Week High: From 1% to 15%
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100
  • % Increase in Volume (Current Day) vs. 50-Day Average Volume: Greater than or equal to: 50

3. Institutional Sponsorship Increasing
This next screen looks for high quality stocks that have increasing institutional fund sponsorship from one quarter to the next. As you know, this is very important for any stocks I cover and then buy. Every case study on this blog includes detailed institutional sponsorship analysis.

  • Earnings Per Share (EPS) Rating: From 60 to 99
  • Relative Price Strength (RS) Rating: From 60 to 99
  • % of the number of Mutual Funds Owning for Current Quarter vs. Prior Quarter: Greater than or equal to: 10%
  • Stocks trading at new 52-Week High and Percentage price is below 52-Week High: From 0 to 15
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100

4. Quality Stocks making New 52-week Highs:
The next screen is my bread and butter for finding the leaders of the next bull market as it is just starting to develop. This screen looks for high quality stocks making new 52-weeks highs and all-time highs.

  • Earnings Per Share (EPS): Rating From 70 to 99
  • Relative Price Strength (RS): Rating From 70 to 99
  • Stocks trading at new 52-Week High: True
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100
  • % Increase in Volume (Current Day) vs. 50-Day Average Volume: Greater than or equal to: 15

5. Quality Stocks with a new IPO within the past two Years
This screen scans for high quality stocks that have debuted to the market with the past two years (IPO’s).

  • Earnings Per Share (EPS) Rating: Greater than or equal to: 30
  • Relative Price Strength (RS) Rating: Greater than or equal to: 30
  • Market Capitalization (MM): Greater than or equal to: 100.0
  • Current Price: Greater than or equal to: 10.000
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100
  • IPO Date: After 2006

6. My official “Ideal Stock” Screen

  • Relative Price Strength (RS) Rating: From 80 to 99
  • % Change in Latest Quarter’s EPS vs. Same Quarter Prior Year: Greater than or equal to: 25
  • % Increase in Next Year’s EPS Estimate From Prior Year’s Actual EPS: Greater than or equal to: 25
  • Annual % EPS Growth Rate of Last 3 Years: Greater than or equal to: 25
  • % Change Latest Quarter’s Sales vs. Same Quarter Prior Year: Greater than or equal to: 25
  • % Change Latest Reported Fiscal Year Sales vs. Prior Year: Greater than or equal to: 25
  • Annual % Sales Growth Rate of Last 3 Years: Greater than or equal to: 25
  • % of the number of Mutual Funds Owning for Current Quarter vs. Prior Quarter: Greater than or equal to: 1%
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100

7. Strong Earnings Increase 40%+
This is a very basic scan that locates stocks with the largest increases in earnings over the past three years and past three quarters. Very few stocks make this scan but when they do, I take notice.

  • EPS Have Been Accelerating Over the Latest 3 Quarters (%): True
  • Annual % EPS Growth Rate of Last 3 Years: Greater than or equal to: 40
  • Sales Have Been Accelerating Over the Latest 3 Quarters (%): True
  • Current Price Greater than or equal to: 12.000
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100

8. Potential Shorting Opportunities
This scan looks for stocks that may become potential shorting opportunities when the up-trend is over or a sideways market drops to the down-side of a trading range.

  • Current Price Greater than or equal to: 15.000
  • Current 50-Day Average Volume (1000): Greater than or equal to: 100
  • % Increase in Volume (Current Day) vs. 50-Day Average Volume: Greater than or equal to: 50
  • Current Price % Above or Below 200-Day Moving Average: From -15 to 5
  • List stocks in ascending order based on largest daily price drop

There you have it. The screens I use every day to locate the stocks I present in case studies and the daily and weekly screens I developed on MSW. I use other tools from time to time but this is the foundation to my success.

Take the time to visit my educational post from April, How to Create a Successful Stock Watch List, as it goes into further detail.

Comments

  1. Catherine says:

    Where can I find Institutional Sponsorship information outside the source you named?

  2. Catherine,
    Good to hear from you. BusinessWeek has a free institutional section of their website that is accurate. Check that out as that should help.

  3. Hi Chris,
    first i want to say THANKS for teaching us your investment process.

    what is your complete investment/trading process like? i image like this:

    1. run your scans as you described above.
    2. sort the list by industry strenghts
    3. look at each chart (daily & weekly) for technical ,risk/reward, entry, exit (stop loss)

    thx,
    jim

  4. This one (number 6) appears to have a typo or something, as it doesn’t show up in the ‘earnings’ of IBD wizard:

    “% Increase in Next Year’s EPS Estimate From Prior Year’s Actual EPS: Greater than or equal to: 25″

  5. Thanks for the blog, do you ever comment on the South African Markets?

    http://bluvestments.blogspot.com/

  6. Ben
    Below are the three selections I have in the #6 screen under the “Earnings” Tab (all set to 25% ):

    % Change in Latest Quarter’s EPS vs. Same Quarter Prior Year

    % Increase in Current Annual EPS Estimate vs. Last Reported Annual EPS

    Annual % EPS Growth Rate of Last 3 Years

  7. Great post as usual. Y

  8. Chris- would love your take on BLUD. 52 week high 8 weeks ago followed by big pullback. May be getting support at 200 day SMA. I posted the chart on my blog this morning as being interesting.

  9. Hi Chris. Great Blog. Can some of these screens be developed using the Deluxe Stock Screener on MSN Money Central?

  10. Sandro,
    I assume they can be entered into MSN if you use their toold correctly and some imagination. I have never done it but plase share with us if you are successful. I will help you build them on MSN if need be. Let me know.

    Jim,
    I have to take a look at BLUD (I have owned this stock in the past but not recently). It hasn’t been crossing my screens so I don’t know until I take a deeper look.

  11. Thx Chris.

    Let me share with you how I’ve tried to address your first screen;

    1. Quality Stocks within 10% of the 200-day Moving Average

    Earnings Per Share (EPS) Rating: From 70 to 99
    – I can use an “Annual EPS Growth Rate” which I’ve utilized >= 15%.

    Relative Price Strength (RS) Rating: From 70 to 99
    – You have to set up two line to accompolish this. One for >= 70, and a second line for 100,000 shares. I’ve tried to accompolish this with three lines. Last Vol >=100,000, Avg Vol, last 2 weeks >= Avg Vol, last month. Avg Vol, last 2 weeks >= Avg Vol, last Qtr.

    Current Price % Above or Below 200-Day Moving Average: From -5 to 10
    -Accompolished by 2 lines; Last Price >=.95*200 DMA & Last Price

  12. Somehow some of what I previously sent got deleted. Let me redo from the RS screen on down;

    Relative Price Strength (RS) Rating: From 70 to 99
    – You have to set up two line to accomplish this. One for >= 70, and a second line for =100,000, Avg Vol, last 2 weeks >= Avg Vol, last month. Avg Vol, last 2 weeks >= Avg Vol, last Qtr.

    Current Price % Above or Below 200-Day Moving Average: From -5 to 10
    -Accompolished by 2 lines; Last Price >=.95*200 DMA & Last Price

  13. On the CANSLIM screen, why have you left out ROE as a variable? I am a DG user and have a CANSLIM screen as well and I’m amazed how different yours is compared to mine. I copied mine straight out of HTMMIS and actually raised all the parameters like EPS so that fewer companies make the screen (makes it more manageable and IMO raises the probablility of finding a huge winner). Which screen of yours has the biggest percentage of winners?

  14. John V,
    I loosened the CANSLIM screens because I was missing too many of the “big” winners in 2002, 2003 and 2004. Since then, I have caught many of the superstars in 2005, 06 and 07, ones that wouldn’t make the “true CANSLIM parameters”. I have been playing with these screens since 2002 and what I have now is the most successful. A combonation of the screens gives me the most success. Markets change so the popularity of screens change with winners.

  15. Hey Chris.

    Great blog!!!

    You have any meaning why this happend? That the original CANSLIM ain`t working that good anymore? Or was it just fore this periode…

    mvh.
    Trojan Norway

    I loosened the CANSLIM screens because I was missing too many of the “big” winners in 2002, 2003 and 2004. Since then, I have caught many of the superstars in 2005, 06 and 07, ones that wouldn’t make the “true CANSLIM parameters”. I have been playing with these screens since 2002 and what I have now is the most successful. A combonation of the screens gives me the most success. Markets change so the popularity of screens change with winners.

  16. Great post thanks

  17. Hi Chris,
    Thanks for your blog. It’s my first time here and enjoyed everything I’ve read so far.

    About your screens…
    There are a few that I really like and was about to mirror your settings that you where nice enough to give details on.
    But, then I remembered that Marketsmith does allow you to share them.
    Is this something that you have done already?
    Just checking to see if you have.

    TY

  18. Rick,

    Yes, I have my screens on MarketSmith and I can share them with you if you are a member as well.

  19. jamie morgan says:

    Chris

    I have just joined Market smith and was hoping you could share those screens or point me in the right direction on how to get them if that’s fine.

    Jamie

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