Stock scanners have made it possible to access a world of information conveniently and efficiently. When used correctly, screening tools streamline the time-consuming task of trying to find new opportunities, making them essential for all traders and investors.
Yet it is important to remember that their results are only as good as the criteria used, and it is critical to adjust fundamental and technical filters to the current market environment.
In a bull market, most stocks have the momentum to swing up. Even horrible stocks have no earnings or very little potential for them to ever turn a profit. Conversely, the reverse is also true in a bear market, where hundreds of great companies are ruthlessly sold down, even when their business is not impaired. When these solid stocks are brought down by wider sector and macro impacts, it is a great time to start filtering for potential future opportunities.
Filtering the noise
When the broader market has dragged down quality companies, the usual technical indicators that filter for strong momentum and aim to seek out stocks that are actionable immediately, are going to exclude weak stocks that may have some fatal flaws at the current time.
However, if you can accept that some companies have simply been pulled down with everything else, then you are in a great position to look forward to the future. Where there could be a new bull market and the strongest stocks fundamentally are well-placed to be the next recovery stories and bull market leaders.
So, if you want to find candidates that have great fundamentals, yet have been recently sold off, you need to ensure that your scans remove such technical criteria.
In addition, many stocks, or even sectors like Energy, may at times offer solid returns, yet are not the most ideal candidates for growth. Therefore, you want to keep in mind to seek out great companies that change how we live, work and play, and consequently offer compelling upside potential.
Where these candidates are not quite ready, having them on your radar in a secondary list, will help ensure you are well prepared to take advantage of future movements higher.