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New Group List! HOOOOORAY!

September 6, 2007
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After going through the search process and narrowing it down over two meetings, we now have an official new group watchlist. It’s surely not perfect, but I’d bet it’s as good as any. As always, I firmly believe that the real challenge is not finding good stocks, but trading them well and consistently.
If nothing else, notice that all of the stocks are moving sideways to up over the last year. The Trend is your Friend!

Drum roll please……..
(click list to see it bigger)

Now with the list in place, we can progress further with our process of developing a system of rules and trading using the Investools method.

I thought it might also be of some interest to those who didn’t and even those who did attend, to see my little writeup on how to go through this process. I know there are many ways to build a list and some might spend much more or much less time and scrutiny in the process, but this is just how I’ve done it when approaching this kind of list making. Remember the list I made in April and have referred to in recent posts. As a basket of stocks, that list is up 28% from that day in early April to today’s close. So I believe it is a good approach. Of course, that came out right as the market was about stage a major rally. But it seems that this could also be the beginning of a new rally, so being prepared would be a good thing, just in case.

Building a watch list of fundamentally strong stocks with relative strength, both technically and fundamentally.

Goal: Build a list of stocks that are fundamentally strong from a diversified selection of groups and showing relative strength to their groups and the market. This is intended as a bullish watchlist for intermediate to long-term trading/investing.

Most general requirements for doing a Power Pro Search:
F/E – 3.25+
Price Pattern – 2.5+
Minimum Price of stock – $12.50
Average shares traded daily – 500,000
Group chart sideways to up

(What I forgot to do, but intended to do, was to include a search parameter in our PowerPro Search to require a minimum of 3.25 for the Estimates score. That way, we know that the weaker of the two scores going into F/E would not be the forward-looking score. Something to keep in mind for the future and your own searching.)

Ways to search for stocks for a diversified list:

• Do a PowerPro Search with the above criteria. In case it doesn’t result in a sufficiently diversified list, look to the following search methods.
• Look at the sector and group indexes for ideas where to drill down. This is easily done from the “Market Posture” link in the left column of the Strategies tab page.
• Look at Big Chart for groups moving up the ranks. Going from red to yellow to green is ideal. This helps to find the groups coming into favor before they’ve already made their runs. Drill down in the appropriate groups.

Narrowing it down: PRICE IS KING!

Look for a healthy looking chart for the potential stock. Most general rule is that it should start in the lower left corner of the chart and end in the upper right corner. Pretty simple, huh? ☺
Compare the stock’s technical performance with its industry group and the market. We’re looking for relative strength, meaning that the stock is leading its group and the market.

Narrow it down further by looking at the fundamental components and the valuation. Again, we’re looking for relative strength. Note the P/E in relation to that of its group. If it’s cheap, great. If it’s trading at a premium to the group, that might be a good sign. Whatever the case, be aware of it.
Look at the PEG – P/E divided by the growth estimate. It should be lower than 2. 2 or above is considered expensive. Under 1 is considered quite attractive. You can also find the PEG on the “Valuation” page found from the left column of the corporate snapshot page on the Investools toolbox. This is not so much an Investools taught approach, but it can only be helpful to use. Think Warren Buffet. He does allright with the value approach.

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