Stocks I Avoid

While screening, I typically have financial and technical parameters in place and I review results by their chart. As I review the results, these are ideas I keep in mind about stocks to avoid:
  • Stocks moving higher too quickly
  • Stock reporting earnings
  • Stocks in lame industries
  • Stocks at a late stage of a move
  • Stocks with buyout news already baked in the price
I also avoid stocks that moved considerably higher in price in a short amount of time, say three trading sessions. I can wait on these stocks to see if they pause to make a bull flag.

Some stocks have clearly identified places where the price climbs, bases for a while, and then climbs again. I am suspect of stocks trying to clear a third base. The stock move could be too predictable here. After two rounds of nice moves, perhaps smart traders have moved onto different stocks.

If a stock reports earnings in the immediate future, this is not a strong setup for me. While I have held many stocks through earnings, I choose to do so only if I feel the company is financially sound or if I have a considerable profit not jeopardized by negative earnings reactions. I have held through earnings and got toasted for embarrassing losses. My win rate is about 50%. Buying ahead of earnings is a risky trade. You should check earnings dates from multiple sources, so you don't assume one website is always right.

I've experimented with buying stocks and anticipating a run higher before earnings. This has not always worked for me, but probably means I need to learn more about  reading balance sheets and related financials.

As for stocks in a late stage of a move.... at some point, things become too obvious. A stock can't go up forever. So, I exercise caution when I could be late to the party. Maybe I risk less on a new entry in this situation.

I will also avoid stocks based on their industry or if their business model seems weak. I've probably missed some moves with restaurants, but they probably can't compete with biotech or technology.