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
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.
