This is the checklist that I go through everyday when deciding whether or not to initiate any new long positions. They are in no particular order and I only buy when all of them are checked off.
- Is the $SPXEW (The S&P500 Equal Weighted Index) above its 20DSMA? : No
- Is the slope of the $SPXEW ‘s 20DSMA positively sloped? : No -0.22%
- In my universe of stocks which is comprised of stocks that have an average daily volume of at least 100k shares, trade above $5, and have positive sales growth versus the year ago quarter, is the ratio of new 52w highs to the sum of new highs + new lows 80% or greater? : No 74.7%
- Of the S&P500 stocks is the ratio of new 52w highs to the sum of new highs + new lows, known as the $RHSPX, 80% or greater? : No 60%
- Have you read at the last 10 press releases that the company you are looking at has issued?
- Does the company you are looking at have a CQGR of 3.75% or higher in their Sales, roughly equating to a 15% or higher yearly growth rate?
- Does the company you are looking at have a CQGR of 3.75% or higher in their Earnings, roughly equating to a 15% or higher yearly growth rate? (However, I am not dogmatic on this one, as sometimes stocks with negative earnings can still rip higher on the expectations of future profits)
- Have you listened to the company’s latest earnings conference call? Do you know what was/is their guidance for the next quarter?
- Do you know when the company you are looking at will report their next quarterly earnings?
- Can you name at least one, but preferably 2, of the company’s peers? For example Nike, Under Armor, Lululemon. Do you know when your company’s peers report earnings?
- Have you checked if this company history of beating analyst’s estimates? You can check here by typing in the ticker you want.
- Do you know what the short interest is on this stock? Both the number of days to cover and the percentage of the float.
- Do you know how many analysts cover the stock? How many are a buy, sell, or hold? Are there enough negative analysts to have future upgrades serve as positive catalysts?
Don’t buy a damn thing yet, all 4 indicators are saying, “Don’t buy”. For some reason the market’s leaders, i.e. growth stocks with high sales & earnings growth, high PE multiples, & stock price momentum are holding up very well, in fact most of them are making new 52w highs, in a relatively weak tape. This means that correlations are not that strong right now between the $SPXEW and the “average individual stock”. In other words, when correlations are high 90% of all stocks will move in the same direction and at the same rate (or their beta multiplier) as the broad market, everything moves in the same direction. However, right now that is not happening. The momentum growth stocks are essentially shrugging-off all the bad news, ignoring what the broad market is doing, and barreling higher. They are doing their own thing. Who are the leaders? $ULTA $SOLR $LULU $CMG $NFLX companies in that same vein.