EarningsBeats.com Digest for December 3, 2021
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Scanning for Solid Moving Average Tests
I like to run momentum scans against our Strong Earnings ChartList (SECL). It's difficult to keep track of every stock on this ChartList individually as we currently have 541 charts on this list. It's much, much easier to run a scan and narrow our focus based on whatever filters we decide to use. This morning, I ran a scan looking for stocks trending higher, which, for me, means (1) the 20-day EMA is above the 50-day SMA, (2) the open on
Thursday is above the 20-day EMA, (3) the close on Thursday is above the 20-day EMA, and (4) the intraday low is BELOW the 20-day EMA. The purpose of filter #4 is I like to see an intraday breakdown below the 20-day, but a recovery back above. I then further filtered by requiring a SCTR score above 90 and the stock must be on our SECL. Here's one stock that met all these requirements (there were 10 stocks returned with this scan):
Boot Barn (BOOT) has been an exceptional performer, but from the chart, you can see it's pulled back to test its 20-day EMA. I also want to make sure that the most recent price high was accompanied by a higher PPO. This step helps me to avoid a stock with a negative divergence. There's certainly no guarantee that BOOT goes higher from here, but the thing I really like is that I can keep my stop very tight. Anything below 120 would likely
take me out of this trade. That's less than a 2% loss. In the meantime, my target would be back near the high at 134.50. That would be close to a 10% move higher. 10% upside vs. 2% downside means a 5 to 1 reward-to-risk ratio, which is quite strong. Again, it doesn't mean the trade will work, but if you try to trade only 5 to 1 reward-to-risk ratio setups, you only need to hit 1 for every 5 you lose to breakeven.
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Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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