This is loosely based off of Mark Minervini's (Two-time US Investing Champion) concept of Specific Entry Point Analysis (SEPA) Trading. For the most part, Mark follows the CANSLIM approach that was used by his mentor William O'Neal, but he adds his own variables that has worked for him for the past decades.
"Most superperformance phases (Phase 2 of Wycoff Cycle) are driven by an improvement in earnings, revenue, and margins."
~ Minervini
Mark seems to wait for entry into the Phase 2 of the Wycoff Cycle and seemingly makes very little moves during down trends. In November 2021, he tweeted that the market would be in a significant downtrend and remained bearish on the market stance even by July (while I am writing). Personally, I have not seen him play anything short and often states that he already made his money from Phase 2 so now he needs to protect his cash and pulls most out of the market.
He is very calculating and will wait for a stock to be in its Phase 2 for him to invest. Simply put (pun intended), you do not need to play the market both ways and can sit on your hands until the right setup arrives for you to invest.
Personally, I enjoy investing when the market is bullish, bearish, and sideways.
If a stock does not meet the criteria seen below, he disregards and looks for something else. If it meets his criteria, he then breaks down the fundamentals to see if it is worth investing.
He rarely invests in stocks that have dropped 60% or more
Stocks down that much often signal a serious problem or over evaluation
Most constructive setups correct between 10% - 35%
Stocks that experience a deep sell off must contend with a large number of potential sellers or overhear supply
see AAPL, MSFT, SPY, and QQQ in 2022
Current stock price is above the 150 day MA (30 weeks) and 200 day MA (40 weeks) price lines
150MA is above the 200MA
200MA trending upwards for at least 1 month (preferably 4-5 months)
50MA is above the 150MA and 200MA
Current stock price is above the 50MA
Price is at least 30% above its 52-week low.
Current price is within at least 25% of its 52-week high (closer the better)
Relative Strength Ranking (Investors Business Daily). Without subscribing you will not have this information. Consider using other fundamentals that can validate the stock.
Minervini places a huge emphasis on earnings and how he interprets the information
Earnings
Earnings surprises
Accelerating EPS and Revenues
Expanding margins
EPS Breakout
Strong annual EPS change
Signs that acceleration will continue
"...find multiple opportunities to catch a meteoric rise at a low-risk entry point. Time the entry point correctly during a bull market and you could be at a profit right away and on your way to a big gain."
~ Minervini
"Not all stocks that display superperformance characteristics will result in gains. This is why you must establish stop-loss points to force you out of losing positions to protect your account. Conversely, at some point your stock must be sold to realize a profit. "
~ Minervini