I use several quantitative techniques for my short-term trades (days), and this blog will primarily focus on short-term quantifiable edges. I also trade using intermediate-term timeframes (weeks). My intermediate-term trading has typically been focused around high-growth momentum plays. Each weekend I run scans to come up with a list of candidates that meet my criteria from a fundamental and momentum standpoint. I then scroll through the list of stocks to try and find stocks that appear to be setting up in basing patterns and whittle the original list down to create my weekly watch list (although many stocks I’ll frequently just carry over from the previous week as well).

When evaluating the market’s health, one area I always look at is leadership. I believe strong leadership can generate a lot of buying enthusiasm. Investors become more interested in the market and rallies can generate significant momentum. People see certain stocks breaking out that quickly making huge gains and they want to find the next one. Momentum begets more momentum in this manner. Therefore, not only do I look at leadership, but POTENTIAL leadership. Potential leadership can many times be found in my watch list – for those are the high growth stocks that are on the verge of completing basing formations. If they succeed in breaking out they may become the next leaders.

When looking at whether a potential rally could have legs, I look at what my watch list is telling me. This week my list is saying to me that picking’s are slim. If we do get a bounce here, there seems to be a good chance it will be little more than that. Stocks are going to need some time to form proper bases before breakouts can build the kind of momentum that will spark investor enthusiasm enough to generate a significant bull move.

Rob Hanna