Zweig & Zacks Screen

A few of you have commented on the 0% return that the Zweig & Zacks screen has shown so far this year. There haven't been any passing stocks on this screen for several weeks.

The screen looks for any stocks in AAII's Zweig screen that have a #1 ranking from Zack's Research.

I've been wondering recently if I could use the number of passing companies in the Zweig screen and/or the number of companies that have a number 1 ranking on Zack's to get a feel for the market. The Zweig screen averages about 15 stocks each month. Lately, only about 10 have shown up on the screen. And as I said before, none of those stocks have qualified for a number 1 ranking on Zacks. Interesting.

Changes to StockPunk for 2008

In the next couple of weeks, I'll be detailing changes that I'll be making to the site over the next year.

Here are a couple--

Weekly Stock Screens--
During 2007 I posted stocks that passed my screens on a weekly basis. I did this to allow folks to follow the screens and to show that the screens can produce real returns.

This year I will only post stocks that I come up with on my own. I will still post the returns of some of my favorite screens, but I will not post the actual stocks that show up each week. If you are interested in finding out which stocks qualify, you'll need to use AAII's Stock Investor Pro and/or Zack's Rankings.

StockPunk's Market Meter--
During 2007, I learned a lot about determining the overall direction of the market as a whole. I plan to use StockPunk's Market Meter to allow StockPunk readers to see my opinion on market direction on a daily basis.

After a three years of hemming and hawing (is that how you write that?), I purchased a subscription to Zack's Research Wizard today. I've been testing it for the past couple of weeks, and I've really discovered some time-saving ways to evaluate my screens and ideas. I used to go through reams of information (I have a stack of paper two feet tall) to get certain types of historical data. I found ways to get that same information in a few seconds.

The subscription price is $1,600 and that provides 6 years of historical data. I've talked with a lot of folks that nearly drop dead when they hear a price like that but I spent nearly that amount on my dumb '99 Plymouth Voyager yesterday and there is no way that thing is going to make me any money.

I've met a few traders out there who hurt their returns because they are too wrapped up in nickels and dimes. They are afraid to exit a $20,000 losing position because of a $7 commission. They spend all their time looking for free information when they could be making a lot more paying somebody else to do the leg-work for them.

I think there is a lot of fear out there because of shysters who have taken people for all they are worth. I'm sure that hurts the businesses of reputable companies that want to help people make money. My experience with Zacks over the years has been very positive.

I figure this is money well-spent. I'll let you know how things go throughout this next year. I hope to develop some new screens and after the summer, I'll be sharing those screens (and some of my older ones) with StockPunk readers.

Month In Review--April 2007

The month of April wasn't too shabby, but with the gains of the market as a whole, I should have expected to do OK. The portfolio made 7.02% this month. That was OK compared to my different screening approaches. Here are the results of four approaches I'm monitoring right now. Each combines the Zweig screen with a "qualifier".

• Zacks #1 stocks--4.08%
• The 5 highest in Relative Strength--14.16%
• The 5 highest in ReturnGrades--8.47%
• Zweig alone (buy & hold for the month)--5.95%

The highest Relative Strength stocks tend to perform very well in bull markets like this one. Since October 2006, the Relative Strength Approach is up 73%. The Zacks #1 stocks are up 38.56% for the same period.

I've beat a couple of my yearly goals so far, so I hope things continue. I wanted to make over 20% this year, so if I can hold on to things for the remaining 8 months, I'll be able to check that off. It looks like I'm on my way to another +60% year, but I'm not going to count my chickens just yet. There's at least one guy saying that everything in the whole world is in a bubble right now. I wish I was smart enough to know. I'm just plugging away with what I do know and we'll see how that turns out.

Ken has discovered some inconsistencies with what I have written and my current stock holdings. Here's what he said:

You mentioned you are holding or have held SPAR, KRSL, PCP, HDNG, TSS. From the data on AAII's website which is as of 2/28, none of those stocks have a number 1 Zacks rank. As a matter of fact, SPAR, KRSL and HDNG have no Zacks rank, N/A. Only one stock in the screen, GRMN, has a number 1 Zacks rank.
Please correct me if I'm wrong, but it seems you're not only buying the Zweig's number one Zacks rank stocks. As a matter of fact, out of the five top long term performing AAII screen, four of them will not have five number 1 Zacks ranked stocks in them. Only the Est Rev Up 5% screen will have at least five but then again that screen plays right into the hands of the Zacks number 1 rank's criteria.

My response:

Thanks for your question, Ken. Here's the deal. As I've mentioned before, I've also been tracking whether or not a stock's relative strength impacts its performance in a screen. I've found that it does (see earlier posts). So I weight the top 5 stocks with the highest relative strength and also consider whether the stocks are rated #1 by Zacks.

I've found that a combination of the two gives me better diversification and allows me to choose more stocks. Last week, for example, only 3 stocks were rated #1: NOV, MS, and GRMN. So I picked a couple of more that were rated high in relative strength.

I won't sell a stock if it slips from #1 to #2 on the Zacks rating unless it is no longer listed on the screen (I'll put a 3% trailing stop on it then). PCP continues to perform and even though it rates a "2" on Zacks it is still listed on the Zweig screen so I'll keep it until it starts weakening.

Here's one of the e-mails I received today:

I've been a Kirk reader for some time and have learned a lot from his stuff. He's what pointed me to your blog, which I found interesting, informative and amusing. Also, your 2006/2007 performance is very impressive.

As a Zacks Elite subscriber, I too use Zacks Rank with my screens. You mentioned you use Zacks with the AAII Zweig screen to boost performance. Now you've convinced me to join AAII, which I knew about but had never joined.

Would you mind sharing with me the details of how you rebalance weekly? Traders have differing methods for rebalancing, and I'm always interested in learning how successful traders manage their trades. Thanks.

My reply--

Thanks for your e-mail and your encouraging comments. I’m glad you found some things amusing. Sometimes I have no idea what I am doing and I think it is good to communicate that. The only thing that I can’t figure out about my performance is why an idiot like me can earn that much when there are much smarter folks out there who struggle to beat the market. It worries me sometimes that I have just been lucky the last couple of years and that I really am just a dweeb that doesn’t have a clue.

Zacks has a really cool stock screener called Research Wizard (you’re probably familiar with it). I’ve done the 2 week trial a couple of times and I like it, but I haven’t been able to justify the $1,000 per year price tag yet. I think I would be very interested if I could seamlessly incorporate AAII’s screens into Zack's screener. I use AAII’s Stock Investor Pro which costs around $200 per year.

I really don’t have a tried and true system for rebalancing. I don’t actually rebalance each week. I re-evaluate my holdings each week. I heavily emphasize stocks that match the Zweig screen, Can Slim Screen, and a few of the others and then filter the stocks with Zack’s #1 ranking. I hold around 5 stocks until something changes—either the stock no longer appears on the screens or it loses it’s Zacks ranking. (If the ranking changes from a “1” to a “2” I might tighten my stops a bit, but not much. If it changes to a “3” it’s over for the stock and I put a 3 percent trailing stop on it.) That’s pretty much it. Nothing too complicated.

Using Zacks Rating with my screens

One of my top ten books for trading is Ahead of the Market by Mitch Zacks. Despite its shameless promotion of the Zacks website and ratings (who could blame him), the book is very helpful in showing some market moving concepts. The Zacks rank is a great tool. It rates stocks based on earnings surprise (which is explained very plainly and thoroughly in the book) which over time seems to be a good indicator of short term movement. The earnings surprise screen on AAII has produced gains of 1165.2% since 1998 which isn't too shabby.

I've been combining the Zacks indicator with some of my screens for nearly two years and the results have been pretty impressive. For example, since September of 2005 the combination of Zacks ranking and AAII's Zweig screen has made over 100% in gains while the Zweig screen alone has made about 23% during the same period. So far, picking just the stocks that rate a "1" on Zacks and rebalancing weekly seems to really boost the performance of a very profitable screen.