The Most Bullish Stock Charts Right Now

A stock’s price chart is one of the first things many traders look at when looking for stocks. To me a good-looking chart is one that steadily moves higher with only minor drawdowns. The problem is that there are thousands of stocks so it’s impossible to look at every chart. That’s why I came up with a method to quantify and rank the attractiveness of stock charts. In this article, I explain my method and list some stocks with great looking charts over the past six months. Finally, I look back at the previous six months to see if this would have been a good indicator for stock picking.

Inside an Attractive Stock Chart

Beauty is in the eyes of the beholder when it comes to price charts, and different trading methods call for different looking charts (for example, they might look for sharp pullbacks or double bottoms, etc.) but here I’m looking for stocks that are in a steady upward climb with very few periods of losses.

To come up with a chart score, I used four pieces of data for each stock:

• The return over the past six months.
• The percentage of positive days over the past six months.
• The maximum 6-month drawdown for the stock.
• The standard deviation of daily returns over the past six months.

I weighted the return more than the other components of the score. Combining these four statistics, I came up with a way to objectively rank a stock’s chart -- something usually subjective.

Best Looking Stock Charts Past Six Months

Using the method outlined above, below is a list of stocks in the 90th percentile of best-looking charts (I’m looking at all optionable stocks). These are the stocks with the most open interest, so they’ll tend to be popular stocks. Looking at some of the charts, the chart score does look to be capturing stocks in a strong, steady uptrend.

Our contrarian philosophy is to look for stocks that are moving higher yet garner negative sentiment from the investing community. The theory is that the bearish sentiment indicates a lot of potential buyers should they capitulate on their bearish stance and turn bullish. A stock that keeps proving the bears wrong, nonstop, could force this capitulation. Therefore, the list below shows stocks in the 90th percentile of stocks chart scores that have the lowest percentage of buy recommendations according to Zacks. For these stocks, there’s potential for a huge surge if the analysts submit to its bullish price action.

Stock Chart Score as an Indicator

I went back six months and calculated the chart scores at that time for all optionable stocks. Then I separated the stocks into three groups. The top 10% of chart scores, the bottom 10% of scores and then the moderate scores.

Six months ago puts us in the middle of July of last year. Stocks fell slightly over the next three months into the middle of October. The table below shows how the stocks fared given their chart scores. The charts with a high chart score performed the best. They averaged a slight loss of 0.34% but the stocks in the other two brackets lost 3.68% and 4.11% on average. Also, barely half of the stocks in the group with high chart scores were positive with 55% of them beating the S&P 500 Index (SPX). That was also better than the other groups. Finally, there was less volatility in the returns of the outperforming group. The chart was a pretty good indicator for the three months from mid-July to mid-October where stocks in general struggled.

This next table, however, shows the six-month returns of those stock groupings from mid-July up until now. The market has skyrocketed over this period and the relative performance of the groupings are quite a bit different. Looking at the average return, the best-looking charts were the worst performing stocks. A six-month return of 6.66% is usually satisfactory but it’s disappointing when only a third of those stocks beat the S&P 500 Index. Nonetheless, the best-looking charts were tops at producing winners. About 80% of those stocks were positive compared to 60%-65% for the other groupings. It might be that finding the slow, steady, up trending charts leads you to the safest group of stocks.