Episode 3: Building a Trend/Momentum Portfolio
Finding the rockets
Let’s get right into the nitty gritty of identifying trend/momentum stocks. I have a two step process to find them. Most people that I know of have built a computer program to track these items, but I don’t have the money or the time to accomplish that level of expertise. Maybe that will be my downfall, but I am enjoying this current development process for someone without the initial capital or time to invest in a computer program.
My first stop is a website called Finviz.com. It has a lot of free information and then a monthly plan if you want more capabilities. For now, I can screen stocks with the characteristics that I need (to a certain extent) and make some small adjustments from those characteristics when completing my second step.
Finviz also allows you to track your portfolio of stocks on a daily basis (up to 50 total stocks for a portfolio) and then work with those stocks in a screener. I love this feature because I can take the 30-40 stocks that I already own and look at them in different ways to see if they are overvalue, undervalued, close to their moving average, etc. Finviz.com looks like the below.
I click the Screener option, which you see in the top tool bar. Once in the screener, it shares a list of all publicly traded stocks. In order to pare down those stocks, they have three tabs: (1) Descriptive, (2) Fundamental, (3) Technical. As you can see below, I only use the Descriptive and Technical tabs. For the Descriptive tab, I choose the following aspects: (1) +Small (over $300MM) under Market Cap, (2) Over 500K under Average Volume, and (3) Over $5 under price.
I have chosen these three because I want to eliminate the hyper volatile stocks below a market cap of $1B. Finviz only has over $300MM, so on my next step I eliminate those under $1B. I also want the stocks to be heavily traded so I can sell them at any size and above $5 in price to eliminate any penny stocks. Then I click the Technical tab and choose the following three attributes: (1) Quarter +30% under Performance, (2) SMA20 above SMA50 under 20-Day Moving Average, and (3) New High under 50-Day High/Low.
With these indicators, I want to see the stock’s price trending in the right direction, so the 30% performance in 3 months, the average short term price over the last 4 weeks tracking higher than the average price over the last 10 weeks, and a new high in the last 10 weeks of trading. Finviz allows me to save this screen, so every Friday after the market closes, I pull this list of stocks. I shed the stocks that have a market cap under $1B and over $50B, and then write them down for my second step which involves Yahoo! Finance.
Yahoo! Finance has a great feature for their stock charts. You can set up indicators so that every time you open up Yahoo! Finance, they will plot them on the stock chart for you. To set them up, search for the first stock on the screened list. Below I have shown my indicators for Zoom Video (Ticker: ZM). Once you are on the stock page, click the Chart link on the tool bar. When the chart pops up, I click on the Indicators link in the top left of the chart. That drop down has a series of items you can add. The three that I love are: (1) Moving Average set up for 50 days, (2) Bollinger Bands set up with 100 days and 2.75 standard deviation, and (3) ATR Trailing Stop set up for a period of 21 and 4 standard deviation.
The second step is pretty simple. I arrange my charts to show the last month of activity. And then I work through my list from Finviz. I search for the stock, click on the chart, and see if in the last 5 days it has popped above the Bollinger Band’s high price. As you can see for Zoom with the recent jump, it’s price has easily closed above the high Bollinger Band. I like Bollinger Bands because a breakout in stock price from the bands indicates that they overcame the volatility in price of the stock.
If the stock has passed the Finviz screen and closed higher than the Bollinger Band high price in the last 5 days then I set my portfolio up to purchase them at the open of the market on the next Monday. As a recap, here are the key items I look for in a trend/momentum stock:
- Market Cap over $1B and under $50B
- Average volume over 500K under
- Stock Price over $5
- Increase in price for the quarter of 30% or higher
- 20-Day simple moving average above the 50-day simple moving average
- New High price in the last 50 trading days
- Close above the 2.75 standard deviation Bollinger Band high price
If you have any questions or think I can do something better, then leave a comment down below.
Updating the portfolio
Stocks sold this week:
- Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
- Stagnant Sells:
- ATR Stop Sells:
- FLGT – Fulgent Genetics – Got destroyed on the news from Abbott Labs and their low cost Covid test and roll out in the coming months.
- Stagnant Sells:
- Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
- Biggest losers being replaced by new “buy indicator” stocks:
- REGI – Renewable Energy Group
- RVLV – Revolve Group
- Unusual Activity Sell:
Ultimately, the stocks I sold this week will probably do well over time, but it just wasn’t their time in my portfolio. Noticed Renewable popping 15% today, which always tinges my mind with some self-doubt on my process, but then again portfolio performed very well today overall.
Stocks Purchased this week:
- CSIQ – Canadian Solar
- EAT – Brinker International
- ELAN – Elanco Animal Health
- PLAN – Anaplan Inc
I noticed on the screener this week that a lot of the restaurant stocks like EAT, BJRI, and BLMN were moving higher. Will be interesting to see if this trend continues next week. Picked up Brinker International this time, the owner of Chili’s and Maggiano’s.
Overview of the portfolio
And the swings continue. Down 3.27%. Tough week with the S&P 500 being driven higher for some crazy reason by the stock splits of Apple and Tesla. We will see how this next week goes.
Get Started Investing
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
It actually has become more risky to invest keeping your money in savings accounts. Inflation slowly eats away at your purchasing power with those funds, and the interest rates they are offering at the moment as pitifully low. The stock market over any 20 year period in history has never lost money. You must invest!
You can at least get started by opening an investment or brokerage account. My favorite starter account is Robinhood. Simple interface, easy to use, and beginner friendly. You can open up an account in minutes and they will give you a free stock. Plus, if you use my link below, then Robinhood will give me one free stock too.
Disclaimer: These are my own personal thoughts and opinions on investing and finance. I may own companies discussed in this post, and I may have recommendations for or against any stocks mentioned, so don’t buy or sell anything based solely on what you read here. Please make sure to do your own research prior to investing any of your money.