From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #3233 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 Wednesday, March 19 2003 Volume 02 : Number 3233 In this issue: [CANSLIM] many newbie questions about Industry Groups Re: [CANSLIM] many newbie questions about Industry Groups Re: [CANSLIM] New NASD trading restrictions? RE: [CANSLIM] many newbie questions about Industry Groups ---------------------------------------------------------------------- Date: Wed, 19 Mar 2003 10:41:05 -0500 From: "Duane Runnels" Subject: [CANSLIM] many newbie questions about Industry Groups This is a multi-part message in MIME format. - ------=_NextPart_000_005F_01C2EE04.0B59A760 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable I'm trying to figure out the importance of Industry Groups. WON says = pick a leader in a top 20% group and that half of a stock's performance = is related to its group. WON also says pick from the top 6 groups = making new highs. (IBD Rule #11). =20 Is it a valid screen then to start by looking only at the top 40 groups, = find the leaders, and then check for RS and EPS, etc? There doesn't seem to be a lot of discussion here about industry groups, = although there have been several posts recently. Do you consider group = strength then as a secondary factor? It is not part of CANSLIM is it? = Some of you even invest only in certain sectors. =20 I particularly liked Katherine's posts regarding researching groups = showing new rising strength. I watch the Industry Groups table and the = list changes dramatically from one month to the next. Is this a bear = aberation or normal? =20 =20 How much of a group's strength is dependent on one stock's performance? = If this is the case, isn't group performance a misnomer? Also I see = that certain groups have a lot of new highs, but also a lot of new lows. = Is this just a reflection of today's market conditions? In short, how much attention do you pay to the industry group and = why?THANKS. - ------=_NextPart_000_005F_01C2EE04.0B59A760 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable

I=92m trying to figure out = the importance=20 of Industry Groups.  WON says=20 pick a leader in a top 20% group and that half of a stock=92s = performance is=20 related to its group.  WON = also says=20 pick from the top 6 groups making new highs. (IBD Rule = #11).

 

Is it a valid screen then = to start by=20 looking only at the top 40 groups, find the leaders, and then check for = RS and=20 EPS, etc?

There doesn't seem to be a = lot of=20 discussion here about industry groups, although there have been several = posts=20 recently.  Do you consider = group=20 strength then as a secondary factor?  It is not part of CANSLIM is=20 it?  Some of you even invest only in certain = sectors.

 

I particularly liked = Katherine=92s posts=20 regarding researching groups showing new rising strength. I watch the = Industry=20 Groups table and the list changes dramatically from one month to the = next.  Is this a bear aberation or = normal? 

 

How much of a group=92s = strength is=20 dependent on one stock=92s performance? =20 If this is the case, isn=92t group performance a misnomer?  Also I see that certain groups = have a=20 lot of new highs, but also a lot of new lows.  Is this just a reflection of = today=92s=20 market conditions?

 

In short, how much = attention do you pay=20 to the industry group and why?THANKS.

- ------=_NextPart_000_005F_01C2EE04.0B59A760-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Wed, 19 Mar 2003 10:24:47 -0600 From: "Gene Ricci" Subject: Re: [CANSLIM] many newbie questions about Industry Groups This is a multi-part message in MIME format. - ------=_NextPart_000_034E_01C2EE01.C4040150 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Duane, I have always preferred the 'tops-down' approach because it = reduces the size of my watchlist to a manageable size. Here are some = recent findings: 1. Attended a 2-day VectorVest investment seminar (3/8-3/9) and watched = while they did a scan of the entire VectorVest data base using one of = the 'canned' strategies... they performed a short backtest to see = appreciation of the top 10 (returned from the scan) and got XX% return. = They then added a criteria to only scan stocks that were only in the top = XX industries and then performed the same backtest and in all cases = (about 5 demos) the results were significantly higher (I'm still = deciphering my notes so don't have the exact numbers at my finger tips). 2. Have several friends that purchased the CNBC investment course = ($3500) where they tout 'tops-down'. I've watched the tapes and can't = help but smile when the instructor shows them how to use the process to = find stocks to trade. The process being: market direction; industry = Groups: stock selection. He CAUTIONS against a 'bottoms-up' approach = because he doesn't want them to find good stocks with bad industry = ratings. He said "avoid temptation". CNBC teaches them how to find = industries just coming into favor (red to yellow to green) for longs = and/or for the bearish outlook (green to yellow to red). 3. As you can see by the following, HGSI has some recent data supporting = selecting stocks from strong industry groups: ****************************************************** Market Report - 03/15/03 Brought to you by Industry Monitors, Inc. Hi Gene, Ron Brown is chuckling this week. Find out why. This week Ron uses the Weekend Review filter to find promising stocks. Here is a brief review of his findings and analysis: Of the 41 stocks, 19 have a green group rank, 11 have a yellow group rank, 10 have a red group rank. The green group index gained 5.8 percent for the week, the yellow group index gained 4.1 percent for the week, and the red group index gained only 2 percent for the week. This indicates that when the market turns up on volume, money flows into the strongest stocks in the strongest groups before it flows into the strongest stocks in the weakest groups. The lesson is to buy good quality stocks in strong groups during a market rally. Read more of Ron Brown's FREE weekly market report with charts: http://www.highgrowthstock.com/WeeklyReports/rpt/20030315.pdf Hope that this was of some value, Gene =20 ----- Original Message -----=20 From: Duane Runnels=20 To: canslim@lists.xmission.com=20 Sent: Wednesday, March 19, 2003 9:41 AM Subject: [CANSLIM] many newbie questions about Industry Groups I'm trying to figure out the importance of Industry Groups. WON says = pick a leader in a top 20% group and that half of a stock's performance = is related to its group. WON also says pick from the top 6 groups = making new highs. (IBD Rule #11). =20 Is it a valid screen then to start by looking only at the top 40 = groups, find the leaders, and then check for RS and EPS, etc? There doesn't seem to be a lot of discussion here about industry = groups, although there have been several posts recently. Do you = consider group strength then as a secondary factor? It is not part of = CANSLIM is it? Some of you even invest only in certain sectors. =20 I particularly liked Katherine's posts regarding researching groups = showing new rising strength. I watch the Industry Groups table and the = list changes dramatically from one month to the next. Is this a bear = aberation or normal? =20 =20 How much of a group's strength is dependent on one stock's = performance? If this is the case, isn't group performance a misnomer? = Also I see that certain groups have a lot of new highs, but also a lot = of new lows. Is this just a reflection of today's market conditions? In short, how much attention do you pay to the industry group and = why?THANKS. - ------=_NextPart_000_034E_01C2EE01.C4040150 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Duane, I have always preferred the = 'tops-down'=20 approach because it reduces the size of my watchlist to a manageable = size.=20 Here are some recent = findings:
 
1. Attended a 2-day VectorVest = investment=20 seminar (3/8-3/9) and watched while they did a scan of the entire = VectorVest=20 data base using one of the 'canned' strategies... they performed a short = backtest to see appreciation of the top 10 (returned from the scan) and = got XX%=20 return. They then added a criteria to only scan stocks that were only in = the top=20 XX industries and then  performed the same backtest and in all = cases=20 (about 5 demos) the results were significantly higher (I'm still = deciphering my=20 notes so don't have the exact numbers at my finger = tips).
2. Have several friends that purchased = the CNBC=20 investment course ($3500) where they tout 'tops-down'. I've watched the = tapes=20 and can't help but smile when the instructor  shows them how to use = the=20 process to find stocks to trade. The process being: market = direction;=20 industry Groups: stock selection. He CAUTIONS against a 'bottoms-up' = approach=20 because he doesn't want them to find good stocks with bad industry = ratings. He=20 said "avoid temptation". CNBC teaches them how to find industries = just=20 coming into favor (red to yellow to green) for longs and/or for the = bearish=20 outlook (green to yellow to red).
3. As you can see by the following, = HGSI has=20 some recent data supporting  selecting stocks from strong = industry=20 groups:
 
 
******************************************************

Mark= et=20 Report - 03/15/03
Brought to you by Industry Monitors, = Inc.


Hi=20 Gene,

Ron Brown is chuckling this week.  Find out = why.

This=20 week Ron uses the Weekend Review filter to find promising = stocks.
Here is a=20 brief review of his findings and analysis:

Of the 41 stocks, 19 = have a=20 green group rank, 11 have a yellow group
rank, 10 have a red group=20 rank.

The green group index gained 5.8 percent for the week, the = yellow=20 group
index gained 4.1 percent for the week, and the red group index=20 gained
only 2 percent for the week.  This indicates that when = the market=20 turns
up on volume, money flows into the strongest stocks in the=20 strongest
groups before it flows into the strongest stocks in the = weakest=20 groups.
The lesson is to buy good quality stocks in strong groups = during=20 a
market rally.


Read more of Ron Brown's FREE weekly = market report=20 with charts:
http://www.highgrowthstock.com/WeeklyReports/rpt/20030315.pdf
 
Hope that this was of some = value,
Gene
 
----- Original Message -----
From:=20 Duane = Runnels=20
To: canslim@lists.xmission.com=
Sent: Wednesday, March 19, 2003 = 9:41=20 AM
Subject: [CANSLIM] many newbie = questions=20 about Industry Groups

I=92m trying to figure = out the=20 importance of Industry Groups.  WON says pick a leader = in a top=20 20% group and that half of a stock=92s performance is related to its = group.  WON also says pick from the = top 6=20 groups making new highs. (IBD Rule #11).

 

Is it a valid screen then = to start by=20 looking only at the top 40 groups, find the leaders, and then check = for RS and=20 EPS, etc?

There doesn't seem to be = a lot of=20 discussion here about industry groups, although there have been = several posts=20 recently.  Do you = consider group=20 strength then as a secondary factor?  It is not part of CANSLIM = is=20 it?  Some of you even invest only in certain = sectors.

 

I particularly liked = Katherine=92s=20 posts regarding researching groups showing new rising strength. I = watch the=20 Industry Groups table and the list changes dramatically from one month = to the=20 next.  Is this a bear = aberation or=20 normal? =20

 

How much of a group=92s = strength is=20 dependent on one stock=92s performance? =20 If this is the case, isn=92t group performance a misnomer?  Also I see that certain = groups have a=20 lot of new highs, but also a lot of new lows.  Is this just a reflection of = today=92s=20 market conditions?

 

In short, how much = attention do you=20 pay to the industry group and why?THANKS.

- ------=_NextPart_000_034E_01C2EE01.C4040150-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Wed, 19 Mar 2003 12:38:55 -0600 From: "Gene Ricci" Subject: Re: [CANSLIM] New NASD trading restrictions? This is a multi-part message in MIME format. - ------=_NextPart_000_049D_01C2EE14.80FFCE80 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Jerome, brokers must follow the requirements of FRB but that doesn't = mean that they can't implement tighter requirements. For example, many = brokers (including Schwab) limit the type of options that can be traded = in an IRA (in Schwab's case covered calls) while many others like = OptionsXpress.com "allow prudent trading of options in IRAs based on = your individual suitability. At this time, based on industry = regulations, trading in IRAs includes call buying, put buying, cash = secured put writing, spreads, and covered calls. Naked puts and naked = calls are not currently allowed in IRAs."=20 As painful as it may be, my recommendation is to find a broker that = meets your needs. A "work-around' might be to have a small reserve and buy a 1/4 to 1/2 of = what you would normally buy and add to the positions when additional = funds are available.=20 Good luck, Gene =20 ----- Original Message -----=20 From: Jerome Buckmelter=20 To: canslim@lists.xmission.com=20 Sent: Wednesday, March 19, 2003 1:53 AM Subject: RE: [CANSLIM] New NASD trading restrictions? Just to set the record straight, I have never violated any trading law or ever had my accounts restricted, so that is not the issue. = Moreover, Ameritrade admitted that the letter they sent me is a form letter that they send to all who inquire of this matter (see cut-and-paste excerpt below). And again the Client Services staff is telling me that this is = a new interpretation from the FRB as of March 13, 2003. Note that the second paragraph states clearly that one cannot purchase a stock from the proceeds from a sale made the same day, and must wait generally three days before reinvesting. I contacted the FRB and the say that = one can sell a stock and purchase another one on the same day as long as = the purchased stock isn't sold the same day (see the second cut-and-paste excerpt below) from the FRB. So, it is clear that Ameritrade is = wrong, but how do they get off restricting one's account, and more = importantly what can one do to resolve the issue? Thanks to all who have = responded to this thread, your input has been appreciated. Jerome ~~~~~~~~ [Below is cut-and-paste excerpt from Ameritrade:] [begin text]"We are contacting you to explain how recent regulatory guidance we received related to cash accounts will impact your trading activity.=20 "RESTRICTIONS IN CASH ACCOUNTS Under applicable interpretations issued by the staff of the Board of Governors of the Federal Reserve System, cash account clients are prohibited from making a practice of selling securities without having paid for their purchase with "cash" available in their account. "Cash" includes existing cash in the account, the proceeds of settled sales = of fully-paid for securities, and additional cash deposits. Proceeds of a sale may not be included as "cash" before the settlement date - which = is generally three business days."[end text]=20 ~~~~~~~~~ [Below is cut-and-paste excerpt from FRB:] [begin text]"Please note that one can sell a stock and purchase = another one that same day with the=20 proceeds, provided that one does not intend to sell the second = security before the=20 purchase settles. The two staff opinions attached illustrate this concept. 5-616.15 CASH ACCOUNT-Sale and Subsequent Repurchase of a Security A customer has a cash account with fully paid-for securities and no cash. On trade=20 date, the customer instructs the creditor to sell the securities. = Later on the same=20 trade date the customer instructs the creditor to repurchase the same issue of=20 securities for the same cost. Each transaction effected in a cash account must be permissible under section=20 220.8(a) of Regulation T. The sale is permissible under section 220.8(a)(2)(i) of=20 Regulation T, which allows a creditor to sell a security for a = customer if "the=20 security is held in the account." The purchase is permissible under section=20 220.8(a)(1)(ii), which allows a creditor to purchase a security for a customer if=20 "the creditor accepts in good faith the customer's agreement that the customer will=20 promptly make full cash payment for the security or asset before = selling it and does=20 not contemplate selling it prior to making such payment." Board staff was asked whether the customer should be deemed a day = trader and whether=20 Regulation T requires the customer to pay in full for the purchase = with new funds=20 rather than applying the proceeds of the sale of the fully paid-for securities to=20 avoid the imposition of a 90-day freeze pursuant to section 220.8(c). The term "day=20 trader" does not appear in Regulation T, and Board staff believes that the customer=20 is not required to pay for the purchase with new funds if the = securities are not=20 resold prior to the settlement date. According to section 220.8(c)(1), the 90-day=20 freeze is triggered "if a nonexempted security in the account is sold = or delivered to=20 another broker or dealer without having been previously paid for in = full by the=20 customer." The customer in the example has not engaged in this = activity. STAFF OP. of=20 Jan. 6, 2000. Authority: 12 CFR 220.8(a) and (c)...." [end text] -----Original Message----- From: owner-canslim@lists.xmission.com [mailto:owner-canslim@lists.xmission.com] On Behalf Of = Spencer48@aol.com Sent: Tuesday, March 18, 2003 2:29 PM To: canslim@lists.xmission.com Subject: Re: [CANSLIM] New NASD trading restrictions? Tom & Robert: I think I was, indeed, shooting from the hip. As I understand it now (as you explained it in your 3/17, 11:29 = AM=20 E-mail to Canslim, which, in part, says: "...Jerome, perhaps you did not=20 understand my prior reply, but the attachment you posted from = Ameritrade does=20 not prohibit you from buying one stock with the proceeds from another sale=20 done the same day. It did inform you that your acct was restricted, as = I pointed out, if you had not done any sales, then that is obviously an error.=20 One thing that did occur to me is that you are transferring into Ameritrade=20 an acct from another firm. If that acct is already restricted due to a = violation of a Fed call or Reg T call that was not met, or a sale without=20 paying for the purchase, then that restriction travels with the acct = on the=20 transfer, since that is a Fed Reserve rule, not Ameritrade, nor Schwab...."),=20 Jerome bought without his check clearing and then sold what he had bought. =20 Of course, this means he would have used Ameritrade as the risk-taker. However, I could be wrong in this case too (it might not have happened=20 this way). In any event, in order to save my vision from=20 brokerage-speak-fine-print, I think I just want let this subject (at least=20 from my side):Drop! jans =20 - -To subscribe/unsubscribe, email "majordomo@xmission.com" -In the email body, write "subscribe canslim" or -"unsubscribe canslim". Do not use quotes in your email. - -To subscribe/unsubscribe, email "majordomo@xmission.com" -In the email body, write "subscribe canslim" or -"unsubscribe canslim". Do not use quotes in your email. - ------=_NextPart_000_049D_01C2EE14.80FFCE80 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Jerome, brokers must follow the=20 requirements of FRB but that doesn't mean that they can't implement = tighter=20 requirements. For example, many brokers (including Schwab) limit = the type=20 of options that can be traded in an IRA (in Schwab's case covered = calls)=20 while many others like OptionsXpress.com "allow prudent trading of options in IRAs based = on your=20 individual suitability. At this time, based on industry regulations, = trading in=20 IRAs includes call buying, put buying, cash secured put writing, = spreads, and=20 covered calls. Naked puts and naked calls are not currently allowed in = IRAs."=20
 
As painful as it may be, my = recommendation is to=20 find a broker that meets your needs.
 
A "work-around' might be to have = a small=20 reserve and buy a 1/4 to 1/2 of what you would normally buy and add = to the=20 positions when additional funds are available. 
 
Good luck,
Gene
   
----- Original Message -----
From:=20 Jerome=20 Buckmelter
Sent: Wednesday, March 19, 2003 = 1:53=20 AM
Subject: RE: [CANSLIM] New NASD = trading=20 restrictions?

Just to set the record straight, I have never violated = any=20 trading law
or ever had my accounts restricted, so that is not the=20 issue.  Moreover,
Ameritrade admitted that the letter they = sent me is=20 a form letter that
they send to all who inquire of this matter (see = cut-and-paste excerpt
below). And again the Client Services staff = is=20 telling me that this is a
new interpretation from the FRB as of = March 13,=20 2003.  Note that the
second paragraph states clearly that one = cannot=20 purchase a stock from
the proceeds from a sale made the same day, = and must=20 wait generally
three days before reinvesting.  I contacted the = FRB and=20 the say that one
can sell a stock and purchase another one on the = same day=20 as long as the
purchased stock isn't sold the same day (see the = second=20 cut-and-paste
excerpt below) from the FRB.  So, it is clear = that=20 Ameritrade is wrong,
but how do they get off restricting one's = account, and=20 more importantly
what can one do to resolve the issue?  Thanks = to all=20 who have responded
to this thread, your input has been = appreciated. =20 Jerome
~~~~~~~~
[Below is cut-and-paste excerpt from=20 Ameritrade:]
[begin text]"We are contacting you to explain how = recent=20 regulatory
guidance we received related to cash accounts will = impact your=20 trading
activity.

"RESTRICTIONS IN CASH ACCOUNTS
Under=20 applicable interpretations issued by the staff of the Board = of
Governors of=20 the Federal Reserve System, cash account clients are
prohibited = from making=20 a practice of selling securities without having
paid for their = purchase=20 with "cash" available in their account. "Cash"
includes existing = cash in=20 the account, the proceeds of settled sales of
fully-paid for = securities,=20 and additional cash deposits. Proceeds of a
sale may not be = included as=20 "cash" before the settlement date - which is
generally three = business=20 days."[end text]
~~~~~~~~~
[Below is cut-and-paste excerpt from = FRB:]
[begin text]"Please note that one can sell a stock and = purchase=20 another
one that same day with the
proceeds, provided that one = does not=20 intend to sell the second security
before the
purchase = settles. =20 The two staff opinions attached illustrate=20 this
concept.


 5-616.15
CASH ACCOUNT-Sale and = Subsequent=20 Repurchase of a Security
A customer has a cash account with fully = paid-for=20 securities and no
cash. On trade
date, the customer instructs = the=20 creditor to sell the securities. Later
on the same
trade date = the=20 customer instructs the creditor to repurchase the same
issue of=20
securities for the same cost.
Each transaction effected in a = cash=20 account must be permissible under
section
220.8(a) of = Regulation T. The=20 sale is permissible under section
220.8(a)(2)(i) of
Regulation = T, which=20 allows a creditor to sell a security for a customer
if "the =
security is=20 held in the account." The purchase is permissible under
section=20
220.8(a)(1)(ii), which allows a creditor to purchase a security = for=20 a
customer if
"the creditor accepts in good faith the = customer's=20 agreement that the
customer will
promptly make full cash = payment for=20 the security or asset before selling
it and does
not = contemplate=20 selling it prior to making such payment."
Board staff was asked = whether the=20 customer should be deemed a day trader
and whether
Regulation T = requires the customer to pay in full for the purchase with
new = funds=20
rather than applying the proceeds of the sale of the fully=20 paid-for
securities to
avoid the imposition of a 90-day freeze = pursuant=20 to section 220.8(c).
The term "day
trader" does not appear in=20 Regulation T, and Board staff believes that
the customer
is not = required to pay for the purchase with new funds if the = securities
are not=20
resold prior to the settlement date. According to section=20 220.8(c)(1),
the 90-day
freeze is triggered "if a nonexempted = security=20 in the account is sold or
delivered to
another broker or dealer = without=20 having been previously paid for in full
by the
customer." The = customer=20 in the example has not engaged in this activity.
STAFF OP. of =
Jan. 6,=20 2000.
Authority: 12 CFR 220.8(a) and (c)...." [end=20 text]



-----Original Message-----
From: owner-canslim@lists.xmis= sion.com
[mailto:owner-canslim@lists.xmission.com]=20 On Behalf Of Spencer48@aol.com
Sent:=20 Tuesday, March 18, 2003 2:29 PM
To: canslim@lists.xmission.com=
Subject:=20 Re: [CANSLIM] New NASD trading restrictions?

Tom &=20 Robert:

     I think I was, indeed, = shooting from=20 the hip.

     As I understand it now (as = you=20 explained it in your 3/17, 11:29 AM
E-mail to Canslim, which, in = part,=20 says:  "...Jerome, perhaps you did
not
understand my prior = reply,=20 but the attachment you posted from Ameritrade
does
not prohibit = you=20 from buying one stock with the proceeds from another
sale
done = the same=20 day. It did inform you that your acct was restricted, as = I

pointed out,=20 if you had not done any sales, then that is obviously an
error. =
One=20 thing that did occur to me is that you are transferring = into
Ameritrade=20
an acct from another firm. If that acct is already restricted due = to a=20
violation of a Fed call or Reg T call that was not met, or a=20 sale
without
paying for the purchase, then that restriction = travels=20 with the acct on
the
transfer, since that is a Fed Reserve = rule, not=20 Ameritrade, nor
Schwab...."),
Jerome bought without his check = clearing=20 and then sold what he had
bought. 
Of course, this means = he would=20 have used Ameritrade as the = risk-taker.

    =20 However, I could be wrong in this case too (it might not = have
happened=20
this way).  In any event, in order to save my vision from=20
brokerage-speak-fine-print, I think I just want let this subject=20 (at
least
from my=20 side):Drop!

jans

     =

-
-To=20 subscribe/unsubscribe, email "majordomo@xmission.com"
-In= the=20 email body, write "subscribe canslim" or
-"unsubscribe = canslim".  Do=20 not use quotes in your email.


-
-To = subscribe/unsubscribe, email=20 "majordomo@xmission.com"
-In= =20 the email body, write "subscribe canslim" or
-"unsubscribe = canslim". =20 Do not use quotes in your email. - ------=_NextPart_000_049D_01C2EE14.80FFCE80-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. ------------------------------ Date: Wed, 19 Mar 2003 15:12:00 -0600 From: "Katherine Malm" Subject: RE: [CANSLIM] many newbie questions about Industry Groups This is a multi-part message in MIME format. - ------=_NextPart_000_0049_01C2EE29.E42EFE30 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: 8bit Hi Duane, Wow...now those are some high quality newbie questions! The notion of industry group movement has many dimensions, some of it preference, some of it logic. I think at the core, there are some important questions and assumptions. (1) What makes a group a group? No question that this is the biggest question of them all. When studies claim that the "movement of the group contributes 50% to the move" or something equivalent, what group are they talking about? Is it stocks with the same primary SIC code? Stocks serving essentially the same business segment? Stocks that are economically cyclical vs. growth oriented? Stocks that are direct competitors? Stocks that are representative of a business segment benefitting from a common economic cycle, a common technological innovation, a common supportive legislative action? Etc. In other words, you can "group" stocks in any combination and make a statement about "the group"....problem is that from one data source to another, there is little similarity in both the number of groups and in the composition of the group. The IBD tries to do the best job it can at parsing stocks into meaningful groups, but you are still left with groups that have 7 members and others with 207. In some cases, direct competitors don't even fall within the *same* group. If you average activity of the "group", does it say the same thing in a group that has 7 stocks as it does for one with 207? (2) How is the group move measured (time period, averages across price or other metrics, etc.)? If you're ranking a group of stocks, over what period is the ranking done? 3 months? 6 months? 12 months? 25 years? You can make statements about a group, but the timeframe will make a world of difference in determining which group is a "top" group. How is the group ranking derived? If it is price action, is it measured equally across all time periods? Is it weighted from one period to the next? If it is based on average price across a group, how does the variation in prices within the group affect the average? Is it ranked based on other technical measurements? Etc. Again, you could take the same group of stocks and depending on how the ranking is done, a group can fall in the top half or the bottom half of the rankings. Same stocks, different results. (3) What makes a group a leading group? Even if you make reasonable assumptions in questions 1 and 2 for a particular investing style, you're still left with the most important question of all. How does a group *become* a leading group? It *becomes* a leading group because one or more stocks in the group begin to rise from the ashes. As those stocks "outperform" (in whatever measure of outperformance one designates) the *average* for the group measurement rises. As that average rises, the group becomes a "leading" or "top" group. Think about the implications of that, however. That is, the movement of the individual components leads to a higher group measurement. That may attract attention from a trading or economic perspective, but there's no doubt that the underlying fundamentals, economics, innovations, etc. that drew money to the leading stocks drove the group as a whole. It doesn't take a lot of rocket science to know that when a group is down in the dumps, the same holds true in reverse. Money isn't taken away from a group because the group in in the dumpers, the group is in the dumpers because money is taken out of it, driving the average for the group down. Chicken and egg stuff, but important when thinking about those studies that tell you "if you put your money in leading groups, your returns are better." To that, I say a big DUH. Groups are at the bottom because the individual stocks that comprise the group are technically in the dumpers. In CANSLIM investing in particular, the idea is to focus on *strength* and to avoid *laggard* stocks. WON has never said to buy "only" from the top 25% of groups. He says, that "on average, stocks in the top 50 or 100 groups perform better than those in the bottom 100."* ON AVERAGE. He says to focus the *majority* of your buying from within these top groups so that you raise the odds of success and so that you can benefit from the follow on effect. At the same time, however, he repeatedly says to look for leading stocks showing outperformance and that are *leading* the industry move. This is where there is the most bang for the buck. From Investor's Corner 10/26/99 "The logic here is to jump in when the group breaks a downtrend, or rises above a base and heads for new high ground. But for the investor in search of only the best stocks, this strategy is flawed. When a sector breaks out, its top dogs will have already raced ahead of the pack." From Ask Bill 7/02 "Studies show that 37% of a stock's price movement is directly tied to the performance of its industry group. Another 12% is due to strength in its overall sector. Therefore, roughly half of a stock's move is due to the strength of its respective industry. But note that just because the relative strength of the group is on the low side, does not necessarily mean the group is bad. Sometimes, there are only a few true leaders in a group. If the group happens to be large or its is just beginning a move, the group relative strength rating may be skewed to the low side." A similar Ask Bill was published 3/11/03. "[K]eep in mind that emerging leaders may be farther down the industry group rankings." In practical terms, that means there are 2 complementary approaches to using industry group information: top down and bottoms up. I don't think it matters where you start, but you need to do *BOTH*. I prefer bottoms up as a core practice, using industry analysis (top down) as a secondary mining technique. But I have always performed both. Bottoms Up-- A methodical approach to finding individual stocks that are outperforming the market, their industry brethren and/or their direct competitors. Picked up at the appropriate time, you get the full move in leading stocks. Industry analysis is used as a confirming indicator of the move. This is the opportunity to check that there is at least one other direct competitor or industry brethren that is showing high relative strength. Look for indications that the group as a whole may be rolling over. That is, the laggard stocks have already begun to falter and/or fail. Leading stocks will be the last to roll over, so this is where you can pick up on clues that an impending breakout may fail. Mining for this also includes mining in *rising* rather than *top* industry groups. Top Down--Skim the top industry groups to see which are continuing a strong move up vs those that are starting to fail and soon will be moving down in the rankings. Review the stocks within the group to find which are currently setting up for a fresh breakout. Better if these are breakouts from 1st or 2nd stage bases. If the leaders are putting in a consolidation in a 3rd or 4th stage base and the laggards are starting to roll over....look out below! There are ways to streamline these processes so that this can be done efficiently and quickly-- narrow down the list of potential candidates based on a meaningful combination of technicals/fundamentals, use a fast charting service with the essential indicators, flip through the charts or key technical indicators of the stocks within the industry, methodically mine for stocks day to day as technical indicators show that they are setting up for a potential breakout (seek technical strength in individual stocks), and constantly hone technical chart reading skills so that you can tell in 15 seconds or less whether a chart is worth pursuing. That means you need a good combination of tools and personal skills. The tools are just time vs. money and the skills are just practice, practice, practice. Katherine *HTMMIS, 3rd Ed., pg. 201 -----Original Message----- From: owner-canslim@lists.xmission.com [mailto:owner-canslim@lists.xmission.com]On Behalf Of Duane Runnels Sent: Wednesday, March 19, 2003 9:41 AM To: canslim@lists.xmission.com Subject: [CANSLIM] many newbie questions about Industry Groups I’m trying to figure out the importance of Industry Groups. WON says pick a leader in a top 20% group and that half of a stock’s performance is related to its group. WON also says pick from the top 6 groups making new highs. (IBD Rule #11). Is it a valid screen then to start by looking only at the top 40 groups, find the leaders, and then check for RS and EPS, etc? There doesn't seem to be a lot of discussion here about industry groups, although there have been several posts recently. Do you consider group strength then as a secondary factor? It is not part of CANSLIM is it? Some of you even invest only in certain sectors. I particularly liked Katherine’s posts regarding researching groups showing new rising strength. I watch the Industry Groups table and the list changes dramatically from one month to the next. Is this a bear aberation or normal? How much of a group’s strength is dependent on one stock’s performance? If this is the case, isn’t group performance a misnomer? Also I see that certain groups have a lot of new highs, but also a lot of new lows. Is this just a reflection of today’s market conditions? In short, how much attention do you pay to the industry group and why?THANKS. - ------=_NextPart_000_0049_01C2EE29.E42EFE30 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Hi Duane,
 
Wow...now those are some high = quality newbie=20 questions!
 
The notion of industry group = movement has=20 many dimensions, some of it preference, some of it logic.
 
I think at the core, there are = some=20 important questions and assumptions.
 
(1) What makes a group a=20 group?
 
No question that this is the = biggest=20 question of them all. When studies claim that the "movement of the group = contributes 50% to the move" or something equivalent, what group are = they=20 talking about? Is it stocks with the same primary SIC code? Stocks = serving=20 essentially the same business segment? Stocks that are economically = cyclical vs.=20 growth oriented? Stocks that are direct competitors? Stocks that are=20 representative of a business segment benefitting from a common economic = cycle, a=20 common technological innovation, a common supportive legislative action? = Etc. In=20 other words, you can "group" stocks in any combination and make a = statement=20 about "the group"....problem is that from one data source to another, = there is=20 little similarity in both the number of groups and in the composition of = the=20 group. The IBD tries to do the best job it can at parsing stocks into = meaningful=20 groups, but you are still left with groups that have 7 members and = others with=20 207. In some cases, direct competitors don't even fall within the *same* = group.=20 If you average activity of the "group", does it say the same thing in a = group=20 that has 7 stocks as it does for one with 207?
 
(2) How is the group move measured = (time=20 period, averages across price or other metrics, etc.)?
 
If you're ranking a group of = stocks, over=20 what period is the ranking done? 3 months? 6 months? 12 months? 25 = years? You=20 can make statements about a group, but the timeframe will make a world = of=20 difference in determining which group is a "top" group. How is the group = ranking=20 derived? If it is price action, is it measured equally across all time = periods?=20 Is it weighted from one period to the next? If it is based on average = price=20 across a group, how does the variation in prices within the group affect = the=20 average? Is it ranked based on other technical measurements? Etc. Again, = you=20 could take the same group of stocks and depending on how the ranking is = done, a=20 group can fall in the top half or the bottom half of the rankings. Same = stocks,=20 different results.
 
(3) What makes a group a leading=20 group?
 
Even if you make reasonable = assumptions in=20 questions 1 and 2 for a particular investing style, you're still left = with the=20 most important question of all. How does a group *become* a leading = group? It=20 *becomes* a leading group because one or more stocks in the group begin = to rise=20 from the ashes. As those stocks "outperform" (in whatever measure of=20 outperformance one designates) the *average* for the group measurement = rises. As=20 that average rises, the group becomes a "leading" or "top" group. Think = about=20 the implications of that, however. That is, the movement of the = individual=20 components leads to a higher group measurement. That may attract = attention from=20 a trading or economic perspective, but there's no doubt that the = underlying=20 fundamentals, economics, innovations, etc. that drew money to the = leading stocks=20 drove the group as a whole. It doesn't take a lot of rocket science to = know that=20 when a group is down in the dumps, the same holds true in reverse. Money = isn't=20 taken away from a group because the group in in the dumpers, the group = is in the=20 dumpers because money is taken out of it, driving the average for the = group=20 down. Chicken and egg stuff, but important when thinking about those = studies=20 that tell you "if you put your money in leading groups, your returns are = better." To that, I say a big DUH. Groups are at the bottom because = the=20 individual stocks that comprise the group are technically in the = dumpers. In=20 CANSLIM investing in particular, the idea is to focus on *strength* and = to avoid=20 *laggard* stocks.
 
WON has never said to buy "only" = from the=20 top 25% of groups. He says, that "on average, stocks in the top 50 or = 100 groups=20 perform better than those in the bottom 100."* ON AVERAGE. He says to = focus the=20 *majority* of your buying from within these top groups so that you raise = the=20 odds of success and so that you can benefit from the follow on effect. = At the=20 same time, however, he repeatedly says to look for leading stocks = showing=20 outperformance and that are *leading* the industry move. This is where = there is=20 the most bang for the buck.  From Investor's Corner 10/26/99 "The = logic=20 here is to jump in when the group breaks a downtrend, or rises above a = base and=20 heads for new high ground. But for the investor in search of only the = best=20 stocks, this strategy is flawed. When a sector breaks out, its top dogs = will=20 have already raced ahead of the pack." From Ask Bill 7/02 "Studies show = that 37%=20 of a stock's price movement is directly tied to the performance of its = industry=20 group. Another 12% is due to strength in its overall sector. Therefore, = roughly=20 half of a stock's move is due to the strength of its respective = industry. But=20 note that just because the relative strength of the group is on the low = side,=20 does not necessarily mean the group is bad. Sometimes, there are only a = few true=20 leaders in a group. If the group happens to be large or its is just = beginning a=20 move, the group relative strength rating may be skewed to the low side." = A=20 similar Ask Bill was published 3/11/03. "[K]eep in mind that emerging = leaders=20 may be farther down the industry group rankings."
 
In practical terms, that = means there=20 are 2 complementary approaches to using industry group information: top = down and=20 bottoms up. I don't think it matters where you start, but you need to do = *BOTH*.=20 I prefer bottoms up as a core practice, using industry analysis (top = down) as a=20 secondary mining technique. But I have always performed = both.
 
Bottoms Up-- A methodical approach = to=20 finding individual stocks that are outperforming the market, their = industry=20 brethren and/or their direct competitors. Picked up at the appropriate = time, you=20 get the full move in leading stocks. Industry analysis is used as a = confirming=20 indicator of the move. This is the opportunity to check that there is at = least=20 one other direct competitor or industry brethren that is showing high = relative=20 strength. Look for indications that the group as a whole may be rolling = over.=20 That is, the laggard stocks have already begun to falter and/or fail. = Leading=20 stocks will be the last to roll over, so this is where you can pick up = on clues=20 that an impending breakout may fail. Mining for this also includes = mining in=20 *rising* rather than *top* industry groups.
 
Top Down--Skim the top industry = groups to=20 see which are continuing a strong move up vs those that are starting to = fail and=20 soon will be moving down in the rankings. Review the stocks within the = group to=20 find which are currently setting up for a fresh breakout. Better if = these are=20 breakouts from 1st or 2nd stage bases. If the leaders are putting in a=20 consolidation in a 3rd or 4th stage base and the laggards are starting = to roll=20 over....look out below!
 
There are ways to streamline these = processes=20 so that this can be done efficiently and quickly-- narrow down the = list of=20 potential candidates based on a meaningful combination of=20  technicals/fundamentals, use a fast charting service with the = essential indicators, flip through the charts or key technical = indicators of the=20 stocks within the industry, methodically mine for stocks day = to day as=20 technical indicators show that they are setting up for a potential = breakout=20 (seek technical strength in individual stocks), and constantly hone = technical=20 chart reading skills so that you can tell in 15 seconds or less whether = a chart=20 is worth pursuing. That means you need a good combination of tools and = personal=20 skills. The tools are just time vs. money and the skills are just = practice,=20 practice, practice.
 
Katherine
 
*HTMMIS, 3rd Ed., pg. = 201
 
-----Original Message-----
From:=20 owner-canslim@lists.xmission.com=20 [mailto:owner-canslim@lists.xmission.com]On Behalf Of Duane=20 Runnels
Sent: Wednesday, March 19, 2003 9:41 = AM
To:=20 canslim@lists.xmission.com
Subject: [CANSLIM] many newbie = questions=20 about Industry Groups

I=92m trying to figure = out the=20 importance of Industry Groups.  WON says pick a leader = in a top=20 20% group and that half of a stock=92s performance is related to its = group.  WON also says pick from the = top 6=20 groups making new highs. (IBD Rule #11).

 

Is it a valid screen then = to start by=20 looking only at the top 40 groups, find the leaders, and then check = for RS and=20 EPS, etc?

There doesn't seem to be = a lot of=20 discussion here about industry groups, although there have been = several posts=20 recently.  Do you = consider group=20 strength then as a secondary factor?  It is not part of CANSLIM = is=20 it?  Some of you even invest only in certain = sectors.

 

I particularly liked = Katherine=92s=20 posts regarding researching groups showing new rising strength. I = watch the=20 Industry Groups table and the list changes dramatically from one month = to the=20 next.  Is this a bear = aberation or=20 normal? =20

 

How much of a group=92s = strength is=20 dependent on one stock=92s performance? =20 If this is the case, isn=92t group performance a misnomer?  Also I see that certain = groups have a=20 lot of new highs, but also a lot of new lows.  Is this just a reflection of = today=92s=20 market conditions?

 

In short, how much = attention do you=20 pay to the industry group and why?THANKS.

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