How to find Strong Stocks using Prophet.net Scans
Although there are various websites and programs used to find strong and weak industries and sectors in the market, I use Prophet.net and compare results with Investortools. I do deep analytical scans the first weekend of the month and then cursory updates as needed (or desired) on the weekends if I’m not satisfied with potential candidates.
Here is a step-by-step guide to using Prophet.net’s Industry Strength Scan toolbar.
You do need an account to do this effectively, and signing up is free (I have no affiliation with Prophet.net). A membership fee page is here. Basic service is $20 a month.
- Click on the EXPLORE tab (top of the page – reddish orange)
- On the little orange menu bar, click on INDUSTRY RANKINGS <—-link is here
- A table appears which describes broad trends in numerical form – default is 6 months and can be changed as desired
- Click on SEE HISTORICAL TRENDS for the graphical (color) chart — the default now is 1 year. Alter this as needed
- I generally change the period to 3 and 6 month trends depending on my purpose for scanning
- On the left side of the page is an explanation of how to read the chart properly
That covers how to view the trend charts and institutional money flow charts I post at times.
Now, that’s great and all, but how about using the table to find strong and weak stocks right now?!
Here is the procedure for scanning many charts quickly to find a strong watchlist of stocks:
- Click on any of the NAMES of the Industry Groups on the left. Generally scan the top 5 and bottom 5 and any interesting prospects you see.
- This brings up a list of all the charts of the companies in that group (the “stocks” bar tells you how many companies)
- Click on CHART CONTROLS to setup the charts the way you prefer them (it remembers your preferences if you sign-in
- I use the following: Six month charts, candlesticks, daily, simple moving averages 20, 50, and 200
- Next (important) go to FILTER CONTROLS
- Filter down as desired – I use ‘average volume’ = 400,000 and ‘minimum price’ = $25. Use your own filters
- View the general trends of multiple charts
- Make note of any ‘outstanding’ stocks up or down and view them with your normal charting program/website
Here’s an example of a “strong stock” from a “strong industry” as displayed in the chart scan screen:
A couple of notes from personal observation:
- Stocks in strong industries tend to show greater relative strength and vice versa for weakness
- Money flow is graphed left to right (date-wise).
- The ideal pattern is red on the right, yellow in the middle, green on the left. This shows money is flowing IN to the group.
The “26” means it was in the 26th percentile of all stocks, then moved to the 47th and 62nd percentile, and now it’s in the 90th percentile.
- You will generally find the above pattern in the upper-middle of the chart.
- Ignore industry groups with less than 10 stocks in it. One stock can skew the results and provide erratic chart jumping behavior
- Clear industry flow with a great number stocks in the industry tends to provide more reliable signals and candidates
- This is no magic bullet system. You still need to overlay candidates into your system and practice money management/risk control.
- There are always stocks on runaway uptrends and dismal downtrends no matter what the general market is doing. Always.
- It is probably best to stay away from the ‘muddy middle’ of the chart because there isn’t much interest
- For short candidates, scan the opposite pattern where money is flowing OUT of an industry
- You can test your ideas historically simply by clicking on a date on the top of the chart (below the months) and the chart will refresh with that date as current and you can scan and see what ‘would have happened’ if you made decisions based on the readings of a particular date.
- You can alphabetize industry groups by clicking on “Industry Group”
- There are so many ways you can use these scans. Experiment.
Corey,
Thank so much for sharing your ideas with us. I am currently reading Peter Navarro’s When the market moves, will you be ready? — and I can see how it ties in with the sector analysis you presented here with prophet.net. This is certainly helpful. Do you use this set up for swing trading or for longer term position trading?
Thanks, Joe
Joe,
I highly recommend Peter Navarro’s book (mentioned above AND “If It’s Raining in Brazil, Buy Starbucks) as I have mentioned it a few times on my site. “Raining in Brazil” is absolutely the best reference I have found that does not bog you down in immense detail – what I’m saying is that it’s readable and understandable and applicable. “Market Moves… Be Ready” is a condensed version of the “Brazil” book with distilled, actionable information.
I do monthly analyses to try to determine where we are in the Sector Rotation Model and try to place our location the general market environment (in terms of interest rates, inflation, and business cycle analysis), but I also use it to anticipate developing trends and avoid certain areas.
If I see a technical breakout from a base in a stock in a sector I expect should be coming into favor, I’m much more confident in my decision to enter and play for a larger target (or even a small swing target) than if I see a random technical breakout. Having a reason for a potential breakout adds to my confidence level and have served me well in my trading.
I do generate swing trade candidates from the model that have been successful (high win % creating a ‘knowledge edge’) but I also use the knowledge for the accounts I don’t touch much – like my retirement account. When I feel like we’re peaking, I move a larger percent into bonds and when I feel like we’re bottoming, I tend to move back into the market. Such cycles tend to last 3 – 5 years. I’ve not been the best timer, but for long-term returns, I’ve done well. I personally don’t keep long term positions in my active trading accounts.
Navarro’s work is actually designed for active investors with timeframes of many months to years for their positions and work very well in a tax-free account like a Roth-IRA in my opinion.
Thank you for your comment.
Fantastic post! I’ve been having a hard time finding a way to do sector analysis and this is a great way to find a group of stocks that is about to move for my swing trading!! Gracias 🙂
Corey,
Thanks for your comments. I currently have simple sector rotation models that are designed for position trading. I am still struggling with developing a short-term trading system that actually is outperforming my longer term systems consistently and worth the increased amount of work. I still have some homework to do. For my longer term systems, I only need to watch moving averages and relative performances once a week. They consistently outperform the index and I can do it in two hours per week. When I look at swing trading systems, I am confronted with a myriad of technical indicators and it’s all horribly discretionary. This makes me truly “afraid to trade”.
Would you currently consider Prophet.nets industry group “grocery stores” as one of your candidates with money inflow or are they already ranked too high (#24)?
Thanks, Joe
Thanks for the comment, Reno! It’s an absolutely helpful resource, but always remember it’s just a tool to scan. There’s nothing magic about it and you still need to practice good risk/reward. It is a powerful watchlist service, I must add.
Joe:
I’m with you. I don’t do a lot of long term trading to be honest, but what’s simple tends to work in terms of simple indicators and looking back on a chart. I don’t have the guts to ‘trade’ long term but it absolutely can reduce risk and stress by making fewer decisions and reaping better results. I like to mitigate risk through active trading – but maybe it’s not a numbers thing but something more that fits my preference, personality, and risk profile.
Believe me, if I could jump to a longer time frame and be more successful, I would. But trading and learning and teaching are my passion and I wouldn’t be able to have as much fun (so to speak) if I wasn’t as active in my trading decisions. That’s just me though.
Regarding the Grocery Store Industry, I almost used that as my graphic example in the post above but decided against it because it wasn’t a smooth enough money flow. It was erratic in that it started at 1 on the far right, moved very rapidly to 50 to 70 back to 50 and now sits at 87. This type of erratic movement (in terms of percentiles) is common for industries with few stocks (the 24 you mention actually refers to how many stocks are in the industry group, not their ranking).
Their rank is currently 84, meaning they are in the 84th percentile of stocks in terms of relative strength/money flow.
That certainly means there’s room to grow, and stocks that are strong tend to get stronger in the short term and there appears to be upside potential if the trend continues so I would not rule out this industry group, but it comprises such a small number of stocks and the money flow situation is more erratic than I would like. Erratic is ok, it just means potentially more risk.
As a bonus, stocks that are in uptrends from the Grocery Store industry that warrant further attention include Kroger (KR) and Supervalue (SVU). Wynn Dixie (WNN) is making new highs and has broken out (it was earnings driven). Whole Foods Inc (WFMI) – which I have been watching/following for about two years – is making new lows and is being pummeled (it’s a higher-end store).
Thanks Joe!
I love this tool. I use this with 90% of all my trades. I use it on Investools but it’s exactly the same thing. Investools owns Prophet.net. Stocks in good industry groups tend to survive better in less than desireable markets. Like you said, you can trade more confidently by trading stocks in great sectors. Nice blog!
I also use InvesTools scans (they’re cleaner and a bit more detailed) but Prophet.net offers similar information for free and Investools charges upwards of $1,000 per year for certain plans so for the readers, the Prophet.net scans are just as good.
One can see the results themselves just as you mentioned. Stocks that are in the 90th or better percentile tend to remain there a bit longer than pure chance. There’s various reasons for this phenomenon and various strategies to profit from them no matter what the reasons.
Thank you for the comment and compliment!
Joe:
I'm with you. I don't do a lot of long term trading to be honest, but what's simple tends to work in terms of simple indicators and looking back on a chart. I don't have the guts to 'trade' long term but it absolutely can reduce risk and stress by making fewer decisions and reaping better results. I like to mitigate risk through active trading – but maybe it's not a numbers thing but something more that fits my preference, personality, and risk profile.
Believe me, if I could jump to a longer time frame and be more successful, I would. But trading and learning and teaching are my passion and I wouldn't be able to have as much fun (so to speak) if I wasn't as active in my trading decisions. That's just me though.
Regarding the Grocery Store Industry, I almost used that as my graphic example in the post above but decided against it because it wasn't a smooth enough money flow. It was erratic in that it started at 1 on the far right, moved very rapidly to 50 to 70 back to 50 and now sits at 87. This type of erratic movement (in terms of percentiles) is common for industries with few stocks (the 24 you mention actually refers to how many stocks are in the industry group, not their ranking).
Their rank is currently 84, meaning they are in the 84th percentile of stocks in terms of relative strength/money flow.
That certainly means there's room to grow, and stocks that are strong tend to get stronger in the short term and there appears to be upside potential if the trend continues so I would not rule out this industry group, but it comprises such a small number of stocks and the money flow situation is more erratic than I would like. Erratic is ok, it just means potentially more risk.
As a bonus, stocks that are in uptrends from the Grocery Store industry that warrant further attention include Kroger (KR) and Supervalue (SVU). Wynn Dixie (WNN) is making new highs and has broken out (it was earnings driven). Whole Foods Inc (WFMI) – which I have been watching/following for about two years – is making new lows and is being pummeled (it's a higher-end store).
Thanks Joe!