Fishing vessel in Newport Bay, Oregon
Not all ITA Wealth Management readers use ETFs to build their portfolios. There are readers who have an interest in dividend oriented individual stocks. The following analysis walks investors through a group of stocks I pulled off a Seeking Alpha article where the author updates this portfolio on a regular basis.
Main Menu: The analysis begins with the Main Menu where we use the default look-back periods of 60 and 100 trading days with 50% and 30% assigned weights. As many as 20 assets (stocks) will be considered as potential additions to this fictitious stock portfolio.
Tranche Momentum Recommendations: As the first assignment the “owner” of this portfolio will look for stocks to sell.
- Sell any stock that is under-performing SHY. Among these stocks we eliminate the following: BMS, CINF, CVS, GIS, HRL, SBUX, SYY, and TGT.
- Sell any stock that is priced under its 195-Day Exponential Moving Average. We eliminate many of the same stocks and they are: BMS, CVS, GIS, HRL, TGT,VFC, and VZ.
Stocks for Purchase: What stocks have the highest probability of performing well going forward. For this answer we look to the right-hand section of the following table. From the original 29 stocks, eighteen emerge for further analysis as those are the ones with a Group rating of 1 through 5. We are looking at column 20. KO and MKC have a Group rating of four (4) so we will hold them in the portfolio if we already own shares. Note that both KO and MKC show positive Heikin-Ashe candles.
Buy Signals: We are looking for stocks that have a Group rating of 1 through 3 with 1 being the highest.
- Buy stocks with Group ratings of 1 – 3 and positive Heikin-Ashi candles. Those stocks are: AAPL, FAST, FLO, and MMM.
The last test I recommend before making a purchase is to screen the stocks for performance against VTI or U.S. Equities. Here is an example of the Point and Figure (PnF) test. We are looking for securities that have a strong relative performance compared to VTI. Triple M passes the test, as do all four of the identified stocks, as the PnF graph shows X’s in the right-hand column. In the case of MMM, the X’s exceed the previous bullish trend.
While these four stocks do not guarantee positive returns going forward, the probability of success is on our side.
Discover more from ITA Wealth Management
Subscribe to get the latest posts sent to your email.
How would we set the SS up if we just want to look at past 12 months momentum and do so every month? Could we pull a yahoo list of best performers of last 52 weeks and then cull it down with this type of analysis?
I’ve read that many momentum funds do a monthly look at the 12/mo trailing momentum and then add/replace securities as they come on/off the screen.
I imagine this is high turnover and maybe only suitable for a small sleeve of ones portfolio but research suggests it performs well on a sharpe bases except for the big draw-downs if/when markets crash.
Finding the best performers requires some sort of screen. That can be done with the Kipling provided you know what tickers to insert into the Kipling. This is what I will be doing with the Dividend Champions and what HedgeHunter does with ETFs in one of his portfolios.
The Kipling has the option to select any look-back period.
Lowell
I’m interested in this kind of thing below but I don’t have the math chops to do it myself. I’d think it can be done in Excel tas well. I’m only smart enough to follow smart guys like the many who reside here at ITA.
http://www.followingthetrend.com/2017/01/getting-started-with-python-modeling-making-an-equity-momentum-model/
I’m not sure we need a new algorithm until we conclude the current one does not work. Just looking over the basic outline (quickly) I don’t see any built in risk protection. Many of us are very risk aware and that may pay off sooner than we prefer.
If you are aware of stocks known as Dividend Aristocrats or Dividend Champions, I may have something for you within a week.
Lowell
For sure you don’t “need” a new algos nor portfolios. But using the SS for those who might do a little momentum trading does interest me. I do like the idea of applying the SS towards the Dividend champs as well.
I do really like that your Spreadsheet seems that it can be adapted too many things. Great work!