I want to point out something that not a lot of people are talking about.
I always tell you to look at the major indexes to gauge how the market is doing.
But in a market like we’re in right now, it’s what I’d call a “thin” rally.
Because it’s not the market as a whole that is pushing the indexes higher.
It’s just a handful of massive stocks (like NVDA) that are dragging the indexes along for the ride as they go higher.
So in a market like this, my usual advice doesn’t necessarily apply.
What I Like To Do Instead
In markets like this, I like to focus in like a laser on only those specific stocks that are outperforming.
And I do that in a very specific way. Here’s what I look for:
- Stocks that are making a new 52 week high – There are plenty of free tools that will let you do this, like this Wall Street Journal list updated daily (or possibly even more frequently) or this page on Barchart.com.
Once I have that list, I filter them down using this criteria:
- Trades over 500,000 shares average daily volume – it’s got to be something that people are actively trading
- Over $25 per share – we want to stay away from penny stocks and small-potatoes
- Trades on a major exchange – like the NYSE or the Nasdaq
I have my own custom-built TrendPoint software to run these filters. But you can do this at no cost right from home by using a screener like Finviz.
Once I’ve got a list of stocks that meet that criteria…
I like to look at chart of the stock and make sure it’s in a nice long-term trend — generally at least 6 months. But sometimes I’ll make an exception for a particularly good stock if it’s only a 4 month trend.
The main thing you are looking for when you look for this trend is to make sure the stock isn’t hitting new highs just because of some event like positive earnings or a good news story.
Because when stocks pop on events like that, they are just as likely to sink back down.
So the point in spotting the long term trend is to make sure that this is a stock the market has been really loving for a long time.
A Warning
Now, sometimes when I explain my method to folks, they start trying to get fancy.
They start thinking about “bottom picking”, or finding stocks hitting new 52 week lows and trying to see if they’ll turn around.
I’m telling you that’s a waste of time. And in some ways it’s the opposite of what I do.
I’ve found my success spotting stocks in big, long term uptrends.
Trying to “bottom pick” is like sifting through the trash to see if you’ll find some gold.
It might happen once in a blue moon, but in the long run it’s a losing game.
Now What?
Ok so now you’ve got your list of hot stocks. Now what?
Well, you can simply buy the stock and hold it. That’s totally valid.
Some people might choose to buy a call option and wait for the stock to rise so they can get some leverage. That’s valid, too.
But it’s not really my style.
If you’ve been following me for any length of time, you know that I’m all about using stocks to create income.
One way to do that is to buy the stock and sell covered calls. I talk about that in this 2-part series on covered calls.
If you want to get a little fancier, you can do a spread. I haven’t talked too much about that, but I’m planning to do a deep-dive article on it soon.
It’s one of my favorite kinds of ways to create income from stocks — without even owning them!
Stay tuned.
In the meantime, I hope you learned something.
Oh and if you’re not already in my Telegram channel, click here to join. It’s totally FREE!
Hope you enjoy.
Trade well,
Jack Carter
