After a day like yesterday, you always hear a chorus of bloggers and commentators saying, "oh but I can not find opportunities, all I see is overextended stuff". Now if you want to find stocks breaking out but are not overextended, you might find this post helpful.
The central premise behind looking for stocks breaking out but which are not overextended is that, while strength is good, you must time your entries at a consolidation zone , at the beginning of fresh swing move. So essentially you must look for weakness or consolidation in a strong or high relative strength stock. The technical patterns like long bases, cup with handle, W bottoms happen at such junctures.
Now this set of scans have been created using TC2000, but you can recreate the same in any other software once you understand the logic.
1 We are looking for long term strength. So the first scan will give you a way to rank stocks based on price change from 260 days low.
100 * ((C + .01) - ( MINC260 + .01)) / (MINC260 + .01) ( One year Growth)
We will take top 20% stock ranked by this scan. So in TC2000 you will take stocks ranked 80 or above on above scan.
2 We are looking for near term weakness. Near term I am defining as one quarter weakness. That is 1/4 th of 260, or 65 trading days.
(100 * (C1 - C65.1) / C65.1 <= 10)and C >= .90 * MAXC65 (quarter growth)
Which gives you stocks which have less than 10% price growth in last 65 days. Plus it is within 10% of its 65 day high price.
So this condition gives you a pause/ consolidation within a high relative strength stock.
3 Breakout condition. Now to above two scans we will add our breakout condition of 4% up move for today on high volume.
( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1 (breakout condition)
So now you have stocks which meet following conditions:
1 One year relative strength is 80% or more
2 One quarter price growth is less than 10%
3 Current price is within 10% of highest close in 65 days
4 Today's price gain is greater than 4%
5 Volume today > 100000
6 Volume today> volume yesterday.
Now see the stocks meeting this scan criteria. You will see stocks which are breaking out but not overextended. Now to further eliminate stocks in this list you can use IBD EPS rating of 80 plus. If you create the scan without the breakout condition, you can anticipate breakouts.
There are always opportunities in market for those who know how to find them. Enjoy your profits.........
If you are looking for shorter consolidation like the one IBD promotes of 35 days for most of its patterns, you can just change the 2 nd scan :
(100 * (C1 - C35.1) / C35.1 <= 10)and C >= .85 * MAXC260
This will give you stock with C&W or flat bases in last 35 days but within 15% of their 52 week high.