What Does This 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 variety 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 the following alert generators.

the 7x13 dual MA system (the 7-day MA crossing over the 13-day MA with a surge in volume),
the 5x20 dual MA system (ala Donchian), (5-day MA crosses 20-day MA with a surge in volume),
the 5x50 dual MA system, (the 5-day MA crossing over the 50-day MA with a surge in volume),
the 10x20 dual MA system, (the 10-day MA crossing over the 20-day MA with a surge in volume),
the 10x50 dual MA system, (the 10-day MA crossing over the 50-day MA with a surge in volume),
the 13x30 dual MA system, (the 13-day MA crossing over the 30-day MA with a surge in volume).

The scanner's systems form a tightly woven detection "net" that should be able to detect any emerging trend at an early stage of development.  The trader can therefore be alerted to the existence of an emerging trend by the more sensitive systems and can review the stock immediately to see if it makes sense to take a position.  Alternatively, the trader may opt to wait for the stock to register on another system with which he or she is more comfortable and evaluate or re-evaluate it then.  Obviously, a stock beginning a trend will eventually register on all of these systems at one time or another as the trend develops. 

Let's say your initial interest is in finding Bollinger Band breakouts.  While the crossovers do not find Bollinger Band alerts specifically (see StockAlerts for a scanner that will do that), they will detect any trend that results from a Bollinger Band breakout.  Sometimes the systems in this scanner can detect a trend before a Bollinger band penetration takes place.  For example, the following chart of Apple (not recent) shows green Bollinger Bands.  The shorter moving average (purple line) closely follows the stock and the longer moving average (the dark blue line) follows the stock at a greater distance.  The crossover occurs at the red arrow.  The upper Bollinger Band penetration occurs three days later.  True, the shorter moving average only briefly dipped below the longer average and then generated a signal on its crossing back above the longer average, but the chart does illustrate the point.

We display the price change so you can spot 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, the list could be long at times.  We therefore rank the alerts according to the volume surge that occurred on the day of the alert and select the top 30.  For example, if 500 stocks generate a crossover alert, we would list only the 30 with the greatest volume surge.  In the past we would have listed up to 100, but after a complaint about there being too many to review, we decided to narrow the list to the 30 most promising stocks for the day.  The volume surge filter that is used in a scan is posted on the report, but the minimum of the stocks on the list might be much greater than the minimum of the filter.  You can use the change in the 3-day average volume and/or the RSI yourself as additional filters.  A volume decrease undermines the credibility of an alert.  The volume increase is posted for those who want to filter with stricter requirements.