I’ve talked a lot about the four stages of the stock cycle, an idea originally pioneered by legendary trader Richard Wyckoff.
The cycle is made up of four distinct stages that have been repeating themselves for more than 100 years.
- Stage 1: Consolidation
- Stage 2: Accumulation
- Stage 3: Distribution
- Stage 4: Capitulation
While most stocks are somewhere in the Distribution and Capitulation stages right now, you are going to need to know what to look for once the markets bottom out.
You see, I only want to own stocks in a confirmed Stage 2 uptrend. After all, the accumulation phase is where the quick gains are made.
Pretty much all of the long ideas I put forth in Stock Surge Daily fall into this category.
But if you’ve ever wondered how you can screen for and find these stocks on your own, then keep reading.
Pulling Back the Curtain
It’s actually much easier than you might imagine.
Using a simple online screener, you can scan for qualifying stocks.
I run scans using one or more of them each and every week before I publish my Watchlist.
It is a great way to filter a list of over 7,000 publicly traded names down to a more manageable list of stocks that meet your criteria.
If you want to do the same, here are a few tips that might help you.
Stage 2 Screening Parameters
These are my screening criteria for finding stocks in Stage 2 uptrends:
- Stock price is above the 50-day moving average
- 50-day moving average is above the 100-day moving average
- 100-day moving average is above the 200-day moving average
- Stock price is at least 30% above its 52-week low
- Stock price is within 25% of its 52-week high
- 200-day moving average has been trending higher for at least one month
- If using MarketSmith, I also require a relative strength score of 70 or greater
Any stock that meets these criteria is in a confirmed Stage 2 uptrend.
Remember, if you want to make money in stocks, Stage 2 is when you need to own them.
Following a consolidation period, a stock will break out as institutions begin buying the stock in large size.
For this reason, higher prices will usually be accompanied by a surge in volume.
The rapid rise in the stock price attracts other investors who pile on and add to the momentum.
This domino effect propels the share price to new highs, allowing for big, quick profits.
You’ll likely see the bulk of your gains in Stage 2, so do yourself a favor and see what you find using the stock screening parameters I’ve outlined above.
Oh, and if you’re interested in potentially supercharging your Stage 2 gains, trading options is one strategy to consider…
Just make sure you know when to buy options and when to sell them.
Join Me This Afternoon
If you want to see my Stage 2 stock strategy in action, consider checking out my Alpha Stocks trading service.
We’ve had plenty of long ideas for the right stocks, but we’re also not afraid to go short.
In fact, we just scored a return on a short position of 21.6% in only eight days..
Not only do we know how to short stocks, but we also provide option alternatives if that’s more of your style.
And we get together every Monday for an hour-long live session so that subscribers can ask questions and get guidance about our trades.
Embrace the surge,
Editor, Stock Surge Daily