Thursday, December 9, 2010

How To Identify Strong Or Weak Stocks

In momentum trading, traders pick the strong stocks to go long and weak stocks to go short.    However the key question here is how do you determine if a stock is a strong stock or a weak stock?

You should be able to tell from the price chart if a stock is looking strong.  For example if a stock keeps making higher low and higher high, it falls into the strong stock category.  By the same token, if the stock is making lower high and lower low, it is considered a weak stock.

A more mathematical method is to compute the distance between the current closing price and its 52 week’s price high and price low to determine which is the stronger and weaker stock trading in the market. 

The formula is as follows:

            Strength = (52 week high – closing price)/52 week high
            Weakness = (closing price – 52 week low)/52 week low

If you compute the Strength and Weakness value for every stock trading in the exchange and sort it based on its Strength and Weakness, you get a list of strong and weak stocks respectively.

Based on the 7 Dec 2010 closing price of the 500 stocks in the S&P500 index, the list of strong stocks is:
Symbol StrengthCloseSectorIndustry
CVX0.00380923786.30000305Basic materialsMajor integrated oil and gas
IFF0.00594597955.16999817Basic materialsSpecialty chemicals
PX0.00843165594.08000183Basic materialsSynthetics
HRL0.00359282149.91999817Consumer goodsMeat products
MKC0.00809718946.54999924Consumer goodsProcessed and packaged goods
CCE0.00890780625.59000015Consumer goodsBeverages - soft drinks
XRX0.00918969211.85999966Consumer goodsBusiness equipment
AMP0.00690158154.68000031Financial Asset management
AON0.00772201143.68999863Financial Insurance brokers
MMC0.00897195426.51000023Financial Insurance brokers
TMK0.00924573761.08000183Financial Life insurance
KG0.00421055614.18999958HealthcareDrug manfacturers - others
BDX0.00598516581.37999725HealthcareMedical instruments and supplies
ROP0.00273446276.58999634Industrial goodsIndustrial equipment and components
PLL0.00717070848.45999908Industrial goodsDiversified machinery
SNA0.00765670155.72999954Industrial goodsSmall tools and accessories
ROK0.00840940669.56999969Industrial goodsIndustrial electrical equipment
FISV0.00170158758.66999817ServicesBusiness services
CHRW0.00416937776.43000031ServicesAir delivery and freight services
COST0.00599483669.63999939ServicesDiscount variety stores
EXPD0.00635594356.27999878ServicesAir delivery and freight services
ESRX0.00822971454.22999954ServicesManagement services
AKAM0.00496415654.11999893TechnologyInternet information providers
ADI0.00682052337.86000061TechnologySemiconductor - integrated circuits
TXN0.00683708533.40999985TechnologySemiconductor - broad line
CPWR0.00702369811.31000042TechnologyApplication software
A0.00791972637.58000183TechnologyScientific and technical instruments

The list of weak stocks is:

Symbol WeaknessCloseSectorIndustry
EOG0.0870865592.70999908Basic materialsIndependent oil and gas
DF0.0364656037.389999866Consumer goodsDairy products
K0.05135315148.90999985Consumer goodsProcessed and packaged goods
CAG0.05735973522.01000023Consumer goodsProcessed and packaged goods
GIS0.06624477435.04000092Consumer goodsProcessed and packaged goods
CL0.07645490478.16999817Consumer goodsPersonal products
CPB0.07965226133.90000153Consumer goodsProcessed and packaged goods
BAC0.06146789911.56999969Financial Regional - Mid atlantic banks
HCBK0.06945187511.97999954Financial Savings and loans
PBCT0.07049185413.06000042Financial Savings and loans
FHN0.08261807810.09000015Financial Regional - Southeast banks
ISRG0.059337495260.6499939HealthcareMedical appliances and equipment
ABT0.06028401846.88999939HealthcareDrug manufacturers - major
ZMH0.08644910250.27000046HealthcareMedical appliances and equipment
LLY0.0943565734.11000061HealthcareDrug manufacturers - major
LMT0.03704691969.44999695Industrial goodsAerospace/Defense products and services
PHM0.0831973486.639999866Industrial goodsResidential construction
BIG0.00246564628.45999908ServicesDiscount variety stores
SVU0.0158536738.329999924ServicesGrocery stores
SAI0.06724949615.86999989ServicesTechnical services
RSH0.08426838118.94000053ServicesElectronics stores
KR0.09389048220.68000031ServicesGrocery stores
CSCO0.02052628419.38999939TechnologyNetworking and communication devices
NRG018.85000038UtilitiesElectric Utilities
CEG0.01125598128.29999924UtilitiesElectric Utilities
ETR0.02268771970.41000366UtilitiesElectric Utilities
FE0.09086452735.56000137UtilitiesElectric Utilities

You can derive some basic information based on the list.  For example, the Utilities sector is not doing well whereas Technology sector has more strong stocks.  

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