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As Chief Investment Strategist of Profitable Trading's Alpha Trader service, I've noticed a clear trend emerging over the past few weeks.
When I ran my algorithms to screen the market for our next big winners, two things leapt out at me -- and both are bullish signs.
First, the number of stocks I've been recommending to subscribers is running at twice its "normal" rate.
Second, which I'm going to discuss today, my watch list of potential future entries has exploded. In fact, this is the largest my list has been in the past six months.
My watch list is a group of stocks that meet Alpha Trader's stringent initial qualifications and are nearing -- but not quite at -- a buy recommendation.
All stocks considered for Alpha Trader must have an Alpha Score of 140 or more out of a possible 200. You may have heard us discuss the Alpha Score before, which is based on two proven indicators -- one technical and one fundamental.
Both of these critical factors have a plethora of studies supporting their success in helping select winning investments.
The technical component is relative strength (RS), which ranks stocks based on their price performance relative to other stocks in the market. Research shows that since the beginning of the 19th century, there has been a positive and statistically significant correlation between momentum and stock price performance. This is where the phrase "the trend is your friend" comes from.
The fundamental component is used by investment gurus such as Peter Lynch, Donald Yacktman and Warren Buffett. These legendary value investors know that this factor is crucial to a company's success.
When these two components are combined, they yield a stock's Alpha Score, which as I said, can be as high as 200. The beauty of the Alpha Score is that it provides a way to rank every stock in the market from best to worst, allowing me to spot the stocks most likely to deliver big gains.
Below are stocks currently on my watch list based on their high Alpha Scores, along with their percentile ranking. As you can see, the 15 stocks below roughly fall into the top 10th percentile of the nearly 4,000 stocks I track.
There are two very important things you need to know about this list.
First, as I said before, my watch list is the largest it's been in the past six months, because there are many more stocks than usual flashing high Alpha Scores. This says something about the broader market.
The Alpha Score is designed to find stocks in powerful uptrends. A large number of stocks with high scores is an indication of positive stock market breadth, which shows underlying strength in the market.
To paraphrase famous speculator Jessie Livermore, who served as the influence for Edwin Lefevre's "Reminiscences of a Stock Operator," the market is healthy when leading stocks remain in bullish uptrends.
The second thing I want you to know is that a stock with a high Alpha Score is not an automatic buy recommendation.
My Alpha Trader sweet spot is the intersection of the strongest Alpha Scores with the best technical risk/reward setups. I have specific, quantifiable buy rules, and adding these technical filters cuts my list from dozens to the handful of selections I recommend.
So please don't treat the stocks on the list above as immediate buy recommendations. Due to their high Alpha Scores, they have the potential for huge uptrends, but I like to use the metaphor that these are stocks "ripening on the vine." I am waiting at the ready for the technical signal that will tell me it's the perfect time to pick them.
Patience is key, and my system has allowed me to consistently select stocks on the verge of a big move higher. So far this year, I've closed trades for returns of 43.2%, 55.1%, 54% and 88.5%. And the Alpha Trader system has led us to profits as high as 242.2% in the past.
If you want to learn more about my system or be immediately alerted when any of the stocks on my watch list gives a buy signal, follow this link.
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