From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #1926 Reply-To: canslim Sender: owner-canslim-digest@lists.xmission.com Errors-To: owner-canslim-digest@lists.xmission.com Precedence: bulk Content-Transfer-Encoding: quoted-printable X-No-Archive: yes canslim-digest Monday, December 10 2001 Volume 02 : Number 1926 In this issue: Re: [CANSLIM] breakouts - return to base ---------------------------------------------------------------------- Date: Mon, 10 Dec 2001 21:23:46 -0600 From: "Katherine Malm" Subject: Re: [CANSLIM] breakouts - return to base This is a multi-part message in MIME format. - ------=_NextPart_000_011E_01C181C0.F3A70DC0 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Yes, Norm. It's my unfortunate vernacular, but it's a reversal day. I = especially hate it near the highs, or soon after a B/O. One tail when = the day's range isn't very large doesn't bother me, but a wide range day = with a tail, or 2 - 3 one after the other has me running for the exits. Katherine ----- Original Message -----=20 From: Norman=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 9:24 PM Subject: Re: [CANSLIM] breakouts - return to base Katherine, I have seen you mention "tails" a few times now and want to be sure I = understand you. Are these the daily charts where a stock closes in the = bottom half of the days range but not at the very bottom? Norm ----- Original Message -----=20 From: Katherine Malm=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 9:07 PM Subject: Re: [CANSLIM] breakouts - return to base David, I see what you're getting at. A stock like EPIQ really had other = things going on that created failure. It wasn't the 123 effect in and of = itself. On a pure technical basis, EPIQ flagged a sell before it would = have ever reached a 7% loss. I saw 4 tails in short order after the B/O. = Very bad pattern and reason enough to sell. Even if you waited until the = huge drop on the 21st, the 2 low volume bounce days after that spelled = "S-E-L-L." I'd agree with you that there is seemingly a higher risk of B/O = failures right now. But in truth, when there's a good strong uptrend, = these things sort themselves out. I agree with statements made by WON = and the IBD lately that in people's haste to "get in" they are often not = doing their fundamental homework, buying into faulty (riskier) technical = patterns, buying extended stocks, or failing to account for group = action. Given that "M" is so unclear right now, I can understand why = you'd want to take a few percentage points and run for cover. Over the = long run, however, I'd argue that it's not the most profitable = intermediate term/CANSLIM strategy. Katherine ----- Original Message -----=20 From: camelot.homes@charter.net=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 8:51 PM Subject: Re: [CANSLIM] breakouts - return to base katherine, my point is, stocks now-with the 123 effect-go through = their b/o with maybe a 10% increase-then they fall below their pivot = point and one might take their WON loss of 7-8%. it seems to me its = better to take that 5-10% profit instead of taking a 8% loss but hoping = that maybe 1 out of 10 of your stocks might increase 50-300%. david ----- Original Message -----=20 From: Katherine Malm=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 8:06 PM Subject: Re: [CANSLIM] breakouts - return to base David, The number of stocks suggested depends on the amount of money = you have in your CANSLIM account. I think WON has some guidelines on = this, but I don't remember them off the top of my head. On the surface, = it would seem to make sense to concentrate a big portion of the total = money in a few stocks, each of which might get you 50-200%. But why not = just buy *one* stock then? The main reason for keeping a certain number = of stocks is to minimize the risk of loss on any one entry as a percent = of your total portfolio. Say for example, you have 10 stocks. That means = the maximum risk to your total portfolio on entry is 10%*(-8%) =3D 0.8%. = Less than 1% of your total portfolio. Another thing to remember is that = not every entry is a winning trade. You can stack the odds in your = favor, but there is still always a risk of loss. In fact, it's common to = have a series of very small losses, but the big winners over time far = outweigh them in total profits. Its all about probabilities. Katherine ----- Original Message -----=20 From: camelot.homes@charter.net=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 8:02 PM Subject: Re: [CANSLIM] breakouts - return to base katherine, of course as long as the 123 effect is in place the = profits will probably be small. also, it seems like if a stock returns = 50-200% it seems like to me one should own 2-5 stocks at anytime instead = of 6-10 stocks. david ----- Original Message -----=20 From: Katherine Malm=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 7:00 PM Subject: Re: [CANSLIM] breakouts - return to base David, I think it depends on your investment strategy. If you are = intentionally playing a short term trend, small profits 5-20% might be = ok. On the other hand, the goal of moving into the intermediate time = frame is to find the right combination of fundamentals and technicals so = the ride can be far greater. A good ride in a good market could easily = get you far more than 5-20%. It's not uncommon to get nice 50-60% = returns in a few months. That's why you want to really understand = price/volume action so that you can determine if the stock remains = healthy in its upward intermediate term advance. Small pullbacks here = and there mean little over this time frame. It's repeated high volume = pull backs (distribution) that are problematic. One of the things that = always stuck with me from Nicholas Darvas' book "How I made $2 million = in the Stock Market" was the simple phrase "I have no reason to sell a = stock that's rising." In other words, skipping town too early could very = well lower your overall investment return. If your strategy is a swing strategy of 1-10 days or so, a = consistent 5-10% return on each position would certainly garner a high = return overall. But the entries are based on pricing patterns and the = candidates mined from stocks with enough volatility to move swiftly in a = few days. Very different strategy than CANSLIM. Katherine ----- Original Message -----=20 From: camelot.homes@charter.net=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 6:24 PM Subject: Re: [CANSLIM] breakouts - return to base katherine and chris, sorry i have been away. i always = wonder if the most likely breakout will rise 5 to 20%-is it better to = take those small profits on alot of stocks, then wait longer for = possible bigger profits? david ----- Original Message -----=20 From: Katherine Malm=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 12:40 PM Subject: Re: [CANSLIM] breakouts - return to base Chris, Just a clarification. The 75% return rate is a pullback = within the first 12 days (this is the average for the study). Bulkowski = states that none take longer than 30 days. After that, it goes beyond = throwback and falls into "normal price action" territory. With regard to the WON 20% rule and profit taking. = Bulkowski gives some statistics that I think throw some light. He says = that 47% of stocks reach a high after breakout in less than 3 months. = 35% take longer than 6 months. Most likely rise? 10-20%. Average rise? = 38%. His frequency distribution shows that the longer it takes to reach = the peak, the larger the average gain. So think about what that means in terms of WON sell = guidelines.=20 (1) If the stock rises 20% in less than 8 weeks, = suggests you hold on through the first correction (2) Once it reaches 25% (and I'm assuming he then means, = if it takes longer than 8 weeks to do that), THEN suggests taking some = profits. But I also look for accumulation/distribution during = these rises to assess whether the uptrend is persistent enough to carry = the stock further than the 25%. In that context, makes a lot more sense! Katherine ----- Original Message -----=20 From: Chris Dempsey=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 12:22 PM Subject: RE: [CANSLIM] breakouts - return to base Katherine, David, and All others interested I remember reading that WON says 40% of breakouts = return to the base. I believe it is more than that. I'm not sure that it = is 75%, but it might be. For that reason WON states in his book you must = take some profits when they hit 20%. On one of the IBD tapes they state = to profits in 1/2 of positions reaching 25%. These are because of the = high rate of pull backs. If you don't do this then you are forced to use = the rule, don't let a winner turn into a loser.=20 SCUR appears to be an example of a stock = returning/nearly returning to the base. -----Original Message----- From: owner-canslim@lists.xmission.com = [mailto:owner-canslim@lists.xmission.com]On Behalf Of = camelot.homes@charter.net Sent: Monday, December 10, 2001 9:49 AM To: canslim@lists.xmission.com Subject: Re: [CANSLIM] low volume breakouts hi katherine , thank you so much for this very good = information! when bulkowski states that stocks retrace back to the b/o = piont 75% of the time is he talking about high or low volume breakouts? = and where is the best place to get a copy of his book? david ----- Original Message -----=20 From: Katherine Malm=20 To: canslim@lists.xmission.com=20 Sent: Monday, December 10, 2001 5:10 AM Subject: Re: [CANSLIM] low volume breakouts Hi David, The question you ask is a good one. Demanding = controlled study proof of a guideline like this is important, as it = makes an underlying assumption about technical patterns which may or may = not trigger a buy. I pulled out my "Encyclopedia of Chart Patterns" by = Thomas Bulkowski to answer this question. In this book, the author does = statistical studies on chart formation and there is an entire chapter = devoted to the C&H. (pp.135-152). Before I state the author's conclusions, a general = overview of WON's theory as to why volume should be high on the = breakout. That is, you are looking for the point at which demand so = outweighs supply that the price moves up and onward. In my own personal = experience, low volume breakouts seem to fall back more often than not. = But these are "odds" not specifics. SONC is a good example from recent = discussions on the list. Take a look at the daily chart from 10/3 to = now. You can see that SONC tried very hard on several days to break out = of its consolidation, but fell back and eventually gapped down. The low = volume B/O's don't always mean the stock will fail, just that it's not = yet ready to move on. I like to have the odds in my favor, so I'm always = willing to wait until there's proof of the pudding. Back to Bulkowski. In the C&H formation, the = failure rate is 26%. If you wait for an upside breakout, the failure = rate falls to 10%. Stocks retrace back to the B/O point 75% of the time = (average time 12 days). Waiting for the throwback increases the success = rate another 1%. Typical B/O volume is 180% above the prior day and = stays high for the following week. Interestingly, he says removing the = high volume B/O criteria does hurt performance, but only minimally. This = is an excellent chapter on C&H and, based on the statistical evidence, = the author makes other conclusions that lead to particular trading = tactics. There are several additional criteria that WON would require of = a stock forming a C&H and then breaking out, such as rising RS, high = group RS, underlying fundamental characteristics, etc. that are not = included in the author's study. My own conclusions, anecdotally, are = that if these other criteria are met AND you get a high volume B/O, the = odds are in your favor. (No statistical studies to back that up, = however!) Katherine ----- Original Message -----=20 From: camelot.homes@charter.net=20 To: canslim@xmission.com=20 Sent: Sunday, December 09, 2001 5:44 PM Subject: [CANSLIM] low volume breakouts how often does a low volume breakout succeed = past the pivot point versus a high volume breakout past the pivot = point? david - ------=_NextPart_000_011E_01C181C0.F3A70DC0 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Yes, Norm. It's my unfortunate = vernacular, but it's=20 a reversal day. I especially hate it near the highs, or soon after a = B/O. One=20 tail when the day's range isn't very large doesn't bother me, but a wide = range=20 day with a tail, or 2 - 3 one after the other has me = running for=20 the exits.
 
Katherine
----- Original Message -----
From:=20 Norman
To: canslim@lists.xmission.com=
Sent: Monday, December 10, 2001 = 9:24=20 PM
Subject: Re: [CANSLIM] = breakouts - return=20 to base

Katherine,
 
I have seen you mention "tails" a few times now and want to be = sure I=20 understand you.  Are these the daily charts where a stock closes = in the=20 bottom half of the days range but not at the very bottom?
 
Norm
----- Original Message -----
From:=20 Katherine=20 Malm
Sent: Monday, December 10, = 2001 9:07=20 PM
Subject: Re: [CANSLIM] = breakouts -=20 return to base

David,
 
I see what you're getting at. A = stock like EPIQ=20 really had other things going on that created failure. It wasn't the = 123=20 effect in and of itself. On a pure technical basis, EPIQ flagged a = sell=20 before it would have ever reached a 7% loss. I saw 4 tails in short = order=20 after the B/O. Very bad pattern and reason enough to sell. Even if = you=20 waited until the huge drop on the 21st, the 2 low volume bounce days = after=20 that spelled "S-E-L-L."
 
I'd agree with you that there is = seemingly a=20 higher risk of B/O failures right now. But in truth, when there's a = good=20 strong uptrend, these things sort themselves out. I agree with = statements=20 made by WON and the IBD lately that in people's haste to "get in" = they are=20 often not doing their fundamental homework, buying into faulty = (riskier)=20 technical patterns, buying extended stocks, or failing to account = for group=20 action. Given that "M" is so unclear right now, I can understand why = you'd=20 want to take a few percentage points and run for cover. Over the = long run,=20 however, I'd argue that it's not the most profitable intermediate=20 term/CANSLIM strategy.
 
Katherine
----- Original Message ----- =
From:=20 camelot.homes@charter.net=20
To: canslim@lists.xmission.com= =20
Sent: Monday, December 10, = 2001 8:51=20 PM
Subject: Re: [CANSLIM] = breakouts -=20 return to base

katherine, my point is, stocks = now-with the=20 123 effect-go through their b/o with maybe a 10% increase-then = they fall=20 below their pivot point and one might take their WON loss of 7-8%. = it=20 seems to me its better to take that 5-10% profit instead of taking = a 8%=20 loss but hoping that  maybe 1 out of 10 of your stocks might = increase=20 50-300%. david
----- Original Message ----- =
From:=20 Katherine=20 Malm
To: canslim@lists.xmission.com= =20
Sent: Monday, December = 10, 2001=20 8:06 PM
Subject: Re: [CANSLIM] = breakouts -=20 return to base

David,
 
The number of stocks suggested = depends on=20 the amount of money you have in your CANSLIM account. I think = WON has=20 some guidelines on this, but I don't remember them off the top = of my=20 head. On the surface, it would seem to make sense to concentrate = a big=20 portion of the total money in a few stocks, each of which might = get you=20 50-200%. But why not just buy *one* stock then? The main = reason for=20 keeping a certain number of stocks is to minimize the risk of = loss on=20 any one entry as a percent of your total portfolio. Say for = example, you=20 have 10 stocks. That means the maximum risk to your total = portfolio on=20 entry is 10%*(-8%) =3D 0.8%. Less than 1% of your total = portfolio. Another=20 thing to remember is that not every entry is a winning trade. = You can=20 stack the odds in your favor, but there is still always a risk = of loss.=20 In fact, it's common to have a series of very small losses, but = the big=20 winners over time far outweigh them in total profits. Its all = about=20 probabilities.
 
Katherine
----- Original Message ----- =
From:=20 camelot.homes@charter.net=20
To: canslim@lists.xmission.com= =20
Sent: Monday, December = 10, 2001=20 8:02 PM
Subject: Re: [CANSLIM] = breakouts=20 - return to base

katherine, of course as long = as the 123=20 effect is in place the profits will probably be small. also, = it seems=20 like if a stock returns 50-200% it seems like to me one should = own 2-5=20 stocks at anytime instead of 6-10 stocks. david
----- Original Message ----- =
From:=20 Katherine Malm =
To: canslim@lists.xmission.com= =20
Sent: Monday, = December 10, 2001=20 7:00 PM
Subject: Re: = [CANSLIM]=20 breakouts - return to base

David,
 
I think it depends on your = investment=20 strategy. If you are intentionally playing a short term = trend, small=20 profits 5-20% might be ok. On the other hand, the goal of = moving=20 into the intermediate time frame is to find the right = combination of=20 fundamentals and technicals so the ride can be far greater. = A good=20 ride in a good market could easily get you far more than = 5-20%. It's=20 not uncommon to get nice 50-60% returns in a few months. = That's why=20 you want to really understand price/volume action so that = you can=20 determine if the stock remains healthy in its upward = intermediate=20 term advance. Small pullbacks here and there mean little = over this=20 time frame. It's repeated high volume pull backs = (distribution) that=20 are problematic. One of the things that always stuck with me = from=20 Nicholas Darvas' book "How I made $2 million in the Stock = Market"=20 was the simple phrase "I have no reason to sell a stock = that's=20 rising." In other words, skipping town too early could very = well=20 lower your overall investment return.
 
If your strategy is a swing = strategy of=20 1-10 days or so, a consistent 5-10% return on each position = would=20 certainly garner a high return overall. But the entries are = based on=20 pricing patterns and the candidates mined from stocks with = enough=20 volatility to move swiftly in a few days. Very different = strategy=20 than CANSLIM.
 
Katherine
----- Original Message = - -----
From:=20 camelot.homes@charter.net=20
To: canslim@lists.xmission.com= =20
Sent: Monday, = December 10,=20 2001 6:24 PM
Subject: Re: = [CANSLIM]=20 breakouts - return to base

katherine and chris, = sorry i have=20 been away. i always wonder if the most likely breakout = will rise 5=20 to 20%-is it better to take those small profits on = alot of=20 stocks, then wait longer for possible bigger profits?=20 david
----- Original Message = - -----=20
From:=20 Katherine Malm =
To: canslim@lists.xmission.com= =20
Sent: Monday, = December 10,=20 2001 12:40 PM
Subject: Re: = [CANSLIM]=20 breakouts - return to base

Chris,
 
Just a clarification. = The 75%=20 return rate is a pullback within the first 12 days (this = is the=20 average for the study). Bulkowski states  that none = take=20 longer than 30 days. After that, it goes beyond = throwback and=20 falls into "normal price action" territory.
 
With regard to the WON = 20% rule and=20 profit taking. Bulkowski gives some statistics that I = think=20 throw some light. He says that 47% of stocks reach a = high after=20 breakout in less than 3 months. 35% take longer than 6 = months.=20 Most likely rise? 10-20%. Average rise? 38%. His = frequency=20 distribution shows that the longer it takes to reach the = peak,=20 the larger the average gain.
 
So think about what = that means in=20 terms of WON sell guidelines.
 
(1) If the stock rises = 20% in less=20 than 8 weeks, suggests you hold on through the first=20 correction
(2) Once it reaches 25% = (and I'm=20 assuming he then means, if it takes longer than 8 weeks = to do=20 that), THEN suggests taking some = profits.
 
But I also look for=20 accumulation/distribution during these rises to assess = whether=20 the uptrend is persistent enough to carry the stock = further than=20 the 25%.
 
In that context, makes = a lot more=20 sense!
 
Katherine
 
 
----- Original Message -----
From:=20 Chris=20 Dempsey
To: canslim@lists.xmission.com= =20
Sent: Monday, = December=20 10, 2001 12:22 PM
Subject: RE: = [CANSLIM]=20 breakouts - return to base

Katherine, David, and All = others=20 interested
 
I remember reading that WON = says 40%=20 of breakouts return to the base. I believe it is more = than=20 that. I'm not sure that it is 75%, but it might be. = For that=20 reason WON states in his book you must take some = profits when=20 they hit 20%. On one of the IBD tapes they state to = profits in=20 1/2 of positions reaching 25%. These are because of = the high=20 rate of pull backs. If you don't do this then you are = forced=20 to use the rule, don't let a winner turn into a loser. =
 
SCUR appears to be an = example of a=20 stock returning/nearly returning to the=20 base.
-----Original=20 Message-----
From:=20 owner-canslim@lists.xmission.com=20 [mailto:owner-canslim@lists.xmission.com]On = Behalf Of=20 camelot.homes@charter.net
Sent: = Monday,=20 December 10, 2001 9:49 AM
To:=20 canslim@lists.xmission.com
Subject: Re: = [CANSLIM]=20 low volume breakouts

hi katherine , = thank you so=20 much for this very good information! when bulkowski = states=20 that stocks retrace back to the b/o piont 75% of the = time is=20 he talking about high or low volume breakouts? and = where is=20 the best place to get a copy of his book? = david
----- Original = Message -----=20
From:=20 Katherine = Malm=20
To: canslim@lists.xmission.com= =20
Sent: = Monday,=20 December 10, 2001 5:10 AM
Subject: = Re:=20 [CANSLIM] low volume breakouts

Hi = David,
 
The question you = ask is a=20 good one. Demanding controlled study proof of a = guideline=20 like this is important, as it makes an underlying=20 assumption about technical patterns which may or = may not=20 trigger a buy. I pulled out my "Encyclopedia of = Chart=20 Patterns" by Thomas Bulkowski to answer this = question. In=20 this book, the author does statistical studies on = chart=20 formation and there is an entire chapter devoted = to the=20 C&H. (pp.135-152).
 
Before I state = the author's=20 conclusions, a general overview of WON's theory as = to why=20 volume should be high on the breakout. That is, = you are=20 looking for the point at which demand so outweighs = supply=20 that the price moves up and onward. In my own = personal=20 experience, low volume breakouts seem to fall back = more=20 often than not. But these are "odds" not = specifics. SONC=20 is a good example from recent discussions on = the=20 list. Take a look at the daily chart from 10/3 to = now. You=20 can see that SONC tried very hard on several days = to break=20 out of its consolidation, but fell back and = eventually=20 gapped down. The low volume B/O's don't always = mean the=20 stock will fail, just that it's not yet ready to = move on.=20 I like to have the odds in my favor, so I'm always = willing=20 to wait until there's proof of the = pudding.
 
Back to = Bulkowski. In the=20 C&H formation, the failure rate is 26%. If you = wait=20 for an upside breakout, the failure rate falls to = 10%.=20 Stocks retrace back to the B/O point 75% of the = time=20 (average time 12 days). Waiting for the throwback=20 increases the success rate another 1%. Typical B/O = volume=20 is 180% above the prior day and stays high for the = following week. Interestingly, he says removing = the high=20 volume B/O criteria does hurt performance, but = only=20 minimally. This is an excellent chapter on C&H = and,=20 based on the statistical evidence,  the = author makes=20 other conclusions that lead to particular trading = tactics.=20 There are several additional criteria that WON = would=20 require of a stock forming a C&H and then = breaking=20 out, such as rising RS, high group RS, underlying=20 fundamental characteristics, etc. that are not = included in=20 the author's study. My own conclusions, = anecdotally, are=20 that if these other criteria are met AND you get a = high=20 volume B/O, the odds are in your favor. (No = statistical=20 studies to back that up, however!)
 
Katherine
 
 
----- Original Message -----
From:=20 camelot.homes@charter.net=20
To: canslim@xmission.com=20
Sent: = Sunday,=20 December 09, 2001 5:44 PM
Subject: = [CANSLIM]=20 low volume breakouts

how often does = a low volume=20 breakout succeed  past the pivot point = versus =20 a high volume breakout past the pivot point?=20 = david
- ------=_NextPart_000_011E_01C181C0.F3A70DC0-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ End of canslim-digest V2 #1926 ****************************** To unsubscribe to canslim-digest, send an email to "majordomo@xmission.com" with "unsubscribe canslim-digest" in the body of the message. For information on digests or retrieving files and old messages send "help" to the same address. Do not use quotes in your message.