What Does Our Stock Scanner Do?

People use scanners to look for gaps, new highs, breakouts, Bollinger band penetrations, or whatever.  However, the bottom line is that these events are believed to be the beginning of significant price movement in the same direction (a new trend).  If a new trend actually develops after one of these events, that new trend will produce a moving average crossover early in its development.  New trends may be preceded by a price gap, a breakout through resistance, a Bollinger Band penetration, or whatever.  However, scanning for moving average crossovers will detect all new trends regardless of how they get started.  

People use stock "filters" and "scanners" in an attempt to buy early when a stock is surging, starting a new trend, or undergoing a price reversal.  Those are the bottom line purposes of most people who use scanners.  The bottom line purpose of this scanner is to help you do precisely that--to find stocks that are just beginning a new trend.  It scans thousands of stocks using 6 different moving average crossover systems having a wide range of sensitivity levels, looking for crossover events in either direction.  It generates an alert for each crossover, names the stock and gives its symbol, identifies the moving averages involved in the crossover, identifies the direction of the crossover, looks for volume surges, gives price and volume surge information, and provides a Relative Strength (RSI) measurement. 

The Systems Used

We scan thousands of stocks using for alert generators the 3x30 dual MA system (the 3-day MA crossing over the 30-day MA), the 5x50 dual MA system, the 7x13 dual EMA system (7-day exponential MA crossing over the 13-day exponential MA), a 4x9x18 triple moving average crossover system (R.C. Allen variation), a 3x13x39 triple moving average crossover system, and a 13x100 dual MA crossover system. 

Each of these systems requires that the average volume for the last 3 days be greater than the 10-day average volume was four days prior to the crossover.  That is, the crossover event must be associated with at least a small increase in volume.  The triple moving average systems also specify that when an upward crossover occurs all moving averages must be in proper alignment AND still rising.   Similarly, at a downward crossover all moving averages must be in proper alignment AND still declining.  For example, if the 4-day MA is above the 9-day MA and the 9-day MA has just crossed above the 18-day MA, an alert will be generated only if all moving averages are still rising.  If they are in proper alignment but the 4-day MA has started to decline, an alert will not be generated.  The purpose is to filter out situations where a whipsaw (reverse crossover) may be about to occur.

Because the crossovers involve moving averages and because they have just occurred, the price chart itself may not be particularly exciting on the day of the crossover.  The crossover of moving averages occurs because momentum has been building that has not yet become evident in the price chart.  Also, these are alerts, not buy or sell signals.  They are intended to draw your attention to potentially interesting developments.  You will still have to review the stocks visually and possibly even monitor them a few days to see if the situation under development calls for action on your part.            

We display the price change to reveal any price surges.  Obviously, a crossover with a price surge is of greater interest than a crossover without a price surge.  This metric can be used in conjunction with volume changes.  We display two volume measurements by which you can screen your candidates.  The first of these is the 1-day change in volume.  The second way we use volume is by comparing the 3-day moving average of the volume to the 3-day moving average of the volume as of 4 days before.  Sometimes a volume spike will occur just before the signal.  A 3-day average volume measurement will be higher than it was four days earlier if there has been a recent volume spike.  You can filter the results by requiring that the volume surge be of a certain magnitude.      

In addition, the Welles Wilder Relative Strength Index (RSI) is provided for each stock that generates an alert.  The reason for including the RSI is that it provides an additional screening mechanism for those who want it.  If a stock has an upward surge during its crossover, the RSI will be higher than if it does not.  For example, a person could "filter" through the stocks that have given an "Up Alert" by requiring that such alerts be accompanied by a certain RSI reading before it becomes truly "interesting."

Because the database that is being searched is large and because there are 6 different alert systems looking for signals, there could be a very large number of stocks that generate a crossover alert of one kind or another on a day when the market surges (if we did not filter them in some way).  To do a preliminary screening and to reduce the size of the list somewhat, we remove stocks from the list if their average volume for the last 3 days is lower than it was 4 days ago.  A volume decrease tends to undermine the credibility of an alert.  On very strong market surge days we may require that the volume for the day of the alert be 20% or more greater than that of the previous day.  On quieter days we may lower this threshold to 10% or some other figure.  The volume increase is posted for those who want to filter with stricter requirements.  Our alert list can be copied and pasted ino a spreadsheet for sorting.