AAII's Zweig Stock Screen Down 17.4% YTD

Occasionally I like to peruse my old haunting grounds to see how I would be doing if I still traded using stock screening techniques. As many of you know, the Zweig stock screen was my "bread and butter" for several years and it performed marvelously for several years averaging a 50% return for me each year. I was using a "tweaked" version of the screen that simply ranked the Zweig screen candidates by their 26 week relative strength (as compared to the S&P 500) using AAII's Stock Investor Pro.

I then chose the top 5 stocks listed in the screen (the screen averaged about 10) and bought them Monday morning. I held through the week without using any stop losses. I would re-evaluate the screen on Sunday and if any stocks dropped off the list, I would sell them Monday morning and replace them with new stocks that qualified for the top 5.

I sometimes held stocks for just a week, but in most cases, the stocks stayed on the screen for weeks and months at a time. It was a very simple way to trade using mechanical methods which allowed me to work full time during the day and still enjoy returns that handily beat the indexes. But things fell apart for the screen in 2008, and AAII's version of the screen lost 34% over the year. Before 2008, the screen's worst performance since 1998 had been a 17% gain in the awful market of 2002.

By mid-2008, I knew that I would have to change my trading strategy if I was going to be able to eventually trade for a living. A losing year just wouldn't cut it for paying the bills since I didn't have an abnormally large chunk of equity. So I made the switch to day trading which I felt gave me much more control over my trading and my equity curve.

I'm still learning, and the transition hasn't been easy by any means. The fast pace and emotional stress of trading intra-day takes its toll. It is much more complicated and requires a huge amount of effort, learning and dedication. I sometimes question the switch I made (as many of my readers have done). So once in a while, I'll "take a peak" at some of my former methods just to see how they're holding up.

I'll have to admit that I was completely surprised to see that the Zweig method has performed poorly this year--down 17.4% YTD. This is the type of environment where the stock screen usually thrives--an unrelenting bullish bias after the market bottoms out. In 2003 the unmodified screen returned 89% with monthly re-balancing.

That fact gives me pause that the rally we are seeing today doesn't necessarily indicate that happy days are here again. Something is not quite right fundamentally if the Zweig screen is down for the year after a 40% rally has taken place.