you are restricting yourself to high relative strength stocks? I am usually able to avoid that because in my first step of screening the charts, I generally rale out stocks
that are overextended from their base. Very often the stocks with the highest relative strength continue to out-
perform the market for months and months. For example, Microsoft had a relative strength of 97 when it was at $50
a share. It eventually moved to $161.
Are you implying that the higher the relative strength the better? Yes, I would rather go with a relative strength of 99 than 95. However, once the relative strength starts
falling off, I usually get out of the stock.
So you are not only paying attention to the relative strength value itself, but also the trend of the relative strength. Right. If the relative strength starts breaking an uptrend, then I would be very cautious, even if it is still well
above 80.
Am I going in the right order, EPS to relative strength, in terms of how you filter down your initial stock list? I would probably place relative strength first, then EPS. Many times the relative strength takes off before that
big earnings report comes out.
Do you also use the relative strength of the industry as a filter in your stock selection? Yes.
Investor's Daily ranks industry groups between 0 and 200.1 usually want the industry group to be in the
top 50.
To continue the screening process, after checking the stock's relative strength, the EPS, and the industry relative strength, what is your next step? I check the number of shares outstanding. I am looking for stocks with less than thirty million shares and
preferably only five to ten million shares. Stocks with more than thirty million shares are more mature; they have
already split a few times. It is a case of supply and demand: Because you have more supply, it takes a lot more
money to move those stocks.
