Wednesday, April 8, 2015

It's Time For a Watch List Tune Up



PHOTOGRAPH BY RYAN MCGUIRE 
Last week I offered up the first part in a 5 part series on building a watch list. In this installment we'll take a deeper look at the earliest stage in the process.

Let Data Drive You

Are you tempted when Jim Cramer is singing the praises of Tesla on CNBC? Or perhaps your friends brother-in-law knows a guy who works at GM? When it comes to watch list building, only focus on the data that you can verify. 

There will always be a fair amount of noise out there so you've got to learn which information you can tune out, and what you should actually be paying attention to.  I like to keep things simple and with as few moving parts as I can.  It helps keep me from getting dragged into the dreaded cycle of analysis paralysis that every stock trader fears.

Examine Market Conditions

I like to start by taking a look at the chart action of the 3 major indices, $DOW, $SPY and $QQQ. Once I've got a clearer picture of the general market I then like to hone in on the 9 major sector ETF's to see which is showing the most life. If you aren't familiar with the sectors, they are:


  1. XLK = Technology
  2. XLV = Health care
  3. XLI = Industrials
  4. XLB = Materials
  5. XLE = Energy
  6. XLF = Financials
  7. XLU = Utilities
  8. XLY = Discretionary
  9. XLP = Staples


Now that I've got the best performing sector in hand, I want to look at just the top stocks in that sector. This is how I get an idea of where the momentum lies. For me, the Relative Strength is the key component in this stage of the process.

Have The Right Tools

Adding a stock to your watch list is only the first step, now comes the real work!  There are countless tools out there but since I focus only on growth stocks, my tool kit begins and ends with Investors Business Daily.  The true value of IBD® is the quality of the data they provide.  In addition to their full break down in the IBD 50 and the Big Cap 20, their editorial section sheds light on the news of the day as it relates to the markets.

The reason IBD® is so critical for me is because they've combined the science of fundamentals and technical analysis with esoteric elements like momentum.  They've done all the leg work for me and I trust their proprietary ratings so it's a no-brainer as far as I'm concerned.  

I also like to cross reference my research with some other industry sources like Schaeffer's, Barron's, and Value Line.  My Twitter feed is actually configured to instantly publish new content from these trusted sources throughout the day so have a look if you'd like a consolidated stream.  

This should give you a fair idea on getting through your initial prep work and building out your watch list with the lowest hanging fruit.  Watch for part 3 of this series next Wednesday where we will examine what I see as barriers to taking a position.  

If you're interested in taking a closer look at my methods I have a few openings left for a free Webinar this Friday April 10th from 3 to 4 PM EST.  Email me ASAP if you would like to take part as space is limited!










DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.