The Novice Bear

Yesterday was an IBD follow-through day, indicating that it is now time to start turning our attention from counter-trend bounces to breakouts.  I like to use the methods I’ve learned from Bill O’Neil and have been able to put together a Blocks layout that helps cut down the number of charts I need to look for. 

The method is fairly simple.  First, I created a way of defining a large price move on high volume, which should be present in any stock making a powerful breakout move.  To do this I just created a channel that uses a measure of the prices volatility.  Using this custom channel, I can just scan for stocks breakout of it on high volume.  I also want to scan for stocks that are near their recent highs.  I do this by creating a 60 Donchian channel and scan for stocks that are near this high.  Finally, I use the TD Average criterion to define an uptrend, which helps find strong stocks that are rising up the right side of a base.  I also use the Backscanner to help highligh buys and sells so I don’t chase stocks that have already made big runs. 

Here are some graphic examples.

The method works best with IBD type momentum stocks, but I was surprised how well it worked with the Nasdaq 100.  Here are the backtest results.