Monday, June 13, 2011

Top Prospects Changes

Beginning Tuesday, I'll be changing the universe of stocks that I scan for Top Prospects, and also will be putting trend-strength limits in choosing which breakouts to report.

Up to now I've scanned the stocks on the Chicago Board of Options Exchange penny-increment list, with volumes at the time of the scan equal to or greater than the volume of NKE. (Local company, great shoes, no other significance). I also have a $5 lower limit to the price.

From that universe, I've reported all breakouts, no matter how weak the trend.

Going forward, I'll scan all optionable stocks -- an expansion of the universe -- but I'll report only stocks having trends, as measured by the average directional index (ADX), of 20 or greater -- a restriction of coverage.

In terms of the color-coding in my postings, I'll be reporting ADX blocks colored magenta (ADX = 20-24), aqua (25-39) and orange (40 and up). I won't be reporting on the brown coding (less than 20).

I'll make an exception to the ADX trend-strength rule for exchange-traded funds. I'll report those no matter how weak the ADX reading, assuming that they meet my volume and price requirements.

Under my rules, of course, I don't trade shares with ADX readings below 25. I haven't yet adopted an exception for exchange-traded funds in my own trading, but I'm considering it, because they bring greater diversification to the mix and so have value.

Also the volume requirement will be changed slightly. I'll cover stocks with volume of 1 million shares or more at the time of the scan, or volume equalling the nearest 100,000 shares below that of NKE, whichever is lower. This change will slightly expand the pool of reportable stocks.

For example, if NKE is showing volume of 1,500,000 a the time of the scan, my minimum volume will be 1,000,000. If NKE is showing volume of 747,128 at the time of the scan, the minimum will be 700,000.

I'll stick to the $5 minimum price for now. There are still some significant players whose stock still hasn't recovered to the $10 level.

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