You are on the right track about using price and volume as indicators over 1st and 2nd derivative indicators and oscillators.
Here is an idea:
0. Settle on the value of N and determine when the N-day trend of the S&P is 'up'. Use simple MA values or even simpler compares (if current price is higher than N-ago price).
When the trend is up by your measure, proceed to next step.
1. For the set of all stocks with price > 10
and daily average volume > 500K
and market cap >= 1B
a. If close is > (1.3 * close from X days ago ) //price is 30% up in X days
b. and close is <= (Y-day MA)and close is >= Z% below Y-day MA //price is at or slightly below Y-day MA
c. and Y-day MA is >= (1.2 * close from ((X * .80) days ago) //price is 20% up in (x * .80) days
..Then consider for purchase. This is a starting point. It narrows the universe down to a small list of stocks that:
a. Are trending higher in both X days (30% or more higher) and X*.80 days (20% or more higher)
The hi-order filter (Step 0) limits your universe of stocks for consideration.
The lower order criteria selects stocks that are trending higher but for some reason are challenging the trendline treshhold you define.
Stocks that are doing this while the market is trending higher may be mispriced temporarily.
The risk characteristics are good because a tight stop can be placed very close to entry.
This is just the beginning of a decent robust trend-following system concept.
It buys strongly trending stocks that are threatening to violate a major trend line,
at a time when the market overall is trending higher. It allows a tight stop, since you
are buying at a spot where the instrument is likely to bounce.
I notice that this approach is good at selecting candidate longs when the overall market is trending higher.
I also notice that this approach is- somewhat suprisingly-- good at selecting candidate SHORTS when the overall market is trending lower.
Here are the candidate names generated from this screen, as of yesterdays close for the following values:
X = 300 (EMA)
Y = 60 (EMA)
z = 5
PDA PTR PKX SDA BBL LFC BTM
Thus the universe of over 8000 USA names is reduced to 6 or 7 promising names.
Note that when the overall market is in a strong period, the list shrinks and may have zero members.
When the overall market is in a weak period, the list of names tends to grow.
yahoo link:
http://finance.yahoo.com/q/cq?d=v1&s...DA+BBL+LFC+BTM
Date of screen, and this post: 11/30/2007
Keep in mind that the market may not be in an uptrend as of 11/30/2007; that depends on your subjective value for N.
Looking at the names and industries can often help you ID promising sectors as well.
This is a very simple concept and a mere 1st-step starting point.
However, looking at the names and charts and industries of these instruments
may be interesting to some readers.