From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #565 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 Sunday, March 28 1999 Volume 02 : Number 565 In this issue: Re: [CANSLIM] Internet Bank Stocks TBFC NTBK Re: [CANSLIM] New Highs Re: Small Caps (was Re: [CANSLIM] c&h) Re: [CANSLIM] DGO New Highs, "M" [CANSLIM] Trading on expectations Re: [CANSLIM] Breakouts and the Market [CANSLIM] Power [CANSLIM] Valuing non earning companies [CANSLIM] ANF Abercrombie and Fitch [CANSLIM] BIG AND MID CAP BUY'S [CANSLIM] BIG AND MID CAP BUY'S Re: [CANSLIM] DGO New Highs, "M" Re: [CANSLIM] Breakouts and the Market Small Cap Rotation (was Re: Small Caps (was Re: [CANSLIM] c&h)) Re: [CANSLIM] Breakouts and the Market ---------------------------------------------------------------------- Date: Sat, 27 Mar 1999 18:03:29 GMT From: musicant@autobahn.org (Dan Musicant) Subject: Re: [CANSLIM] Internet Bank Stocks TBFC NTBK :The chart of NTBK is a classic cup and handle extending back to the last :week of January. *IF* you read it like that, it's just clearing the :January high (which was a spike!) ... *IF* it continues breaking out. :Will it? Time will tell. Friday was the first day of the breakout, IMO, :as Thursday was below ADV, and only took it to the level of the handle. :Still it is up around 25% in two days, and could be considered extended :by CANSLIM standards. Nevertheless, I like the chart. : :Dan I forgot my disclaimer: I bought it on the 17th, ten days ago on a Wednesday, and still hold it. Dan - - ------------------------------ Date: Sat, 27 Mar 1999 15:26:42 -0500 From: "Tom Worley" Subject: Re: [CANSLIM] New Highs Marc, When the leadership groups lack earnings, to me it is just another sign that this is not a market for CANSLIM based investing. If, for some reason, you must remain invested, then you must seek other methods rather than trying to adjust CANSLIM. Valuations remain very high, I cannot recall the last time that the S&P500 PE ratio remained so high for so long of a sustained period. If the mkt were to remain flat for the rest of the year, and the projections of earnings growth of 15% year over year prove true, then we could grow into some of these high valuations by 2000. Then, at least, we would have some fundamentals to support these valuations. In the meantime, I remain unconvinced that we have entered into a new bull mkt, or continued the last one. Right now, the only thing sustaining this mkt is the lack of inflation combined with above trend economic growth and a strong labor mkt. But any one of these factors could turn ugly very quickly, and cause a hike in the Fed rates (won't happen at next week's meeting, but could happen this year). Just the hint, much less the actuality, of a series of rate hikes and this mkt is down 20% or more. Tom W stkguru@netside.net ICQ # 5568838 - -----Original Message----- From: Marc Laniado To: CANSLIM DISCUSSION LIST Date: Saturday, March 27, 1999 9:05 AM Subject: [CANSLIM] New Highs Dear All, Reading through the book and course on IBD, I see we should have our stocks in the groups making the most new highs. I subscribe to Daily Graphs Online and I have sorted through the group looking for new highs. As might be expected, the groups with most new highs have average earnings per share which are quite low compared to what is recommended. Should EPS be replaced with SMR within the stock group or should some other measured be used? Growth in revenues?? The ability to get money in before paying it out vis a vis the formula of (cash and cash equivalents - receivable)/accounts payable In the Motley Fool books, this has been suggested to be a measure of power because strong companies can demand their cash up front and delay paying their accounts. Working capital should be sufficiently positive. The best companies would have fractions of less than 1 eg AOL and MSFT (which has earnings anyway). Perhaps this measure combined with hugh revenues increases (eg AMZN) may indicate which companies are the best in a group to buy if they do not yet have earnings? NH EPS RS 8 37 99 INTERNET-ISP/CONTENT 8 80 97 TELECOMMUNICATIONS-EQUIP 7 24 96 MEDIA-CABLE TV 6 72 92 COMPUTER SOFTWR-ENTERPSE 6 57 95 COMPUTER-SERVICES 6 30 94 TELECOMMUNICATIONS-SVCS 5 53 99 INTERNET-NTWK SEC/SLTNS 4 54 92 ELEC-SEMICONDUCTOR MFG 4 21 98 INTERNET-E*COMMERCE 4 57 85 UTILITY-ELECTRIC POWER 3 78 96 COMML SERVICES-MISC 3 72 96 COMPUTER-LOCAL NETWORKS NH=new high EPS =average earnings per share in the industry group making new highs derived from DGO RS=average RS of stocks making new high in the industry group Any comments? Marc Marc E Laniado marclaniado@msn.com - - ------------------------------ Date: Sat, 27 Mar 1999 23:30:39 EST From: CA011667@aol.com Subject: Re: Small Caps (was Re: [CANSLIM] c&h) This is my point,I am not saying that I or anyone else should start to pile all their money into small caps based on two days.Point is that when things seem as bad as they can get and everyone on the street is selling (i,e, people dumping thier small cap fund in lieu of large caps as stated in prior post) this tells me its time to do my homework and find the best small caps in strong industries with storng EPS and RS and be ready to buy.Remember, the trends can turn in a hurry and it only takes a short time to turn an ugly chart into a good looking one or vice versa.I am not making any crazy predictions here,just watching and waiting so I can be well ahead of the crowd.Chris. - - ------------------------------ Date: Sat, 27 Mar 1999 23:15:32 -0600 From: Dave Cameron Subject: Re: [CANSLIM] DGO New Highs, "M" Tom Worley wrote: > Anyone sitting with cash and seriously considering > committing this cash to the market based on CANSLIM should > rethink this situation. Anyone not already in cash should be > at least carefully monitoring your weakest performers, as > well as reviewing the use of stop or stop limit orders on > your biggest gainers. For me it's easy, I have no gainers, > and all the stocks I have are "weak", now, how do I enter a > "sell everything" order at Schwab?? Oh sure, I come back into the group after 5 months and see the above paragraph posted my the eminent Mr. Worley. This can't be the same group I was in before. Or at least not the same Worley! The Tom Worley I know is always cautiously bullish. Secondly, if Tom is right... I am a great contrarian indicator! I left the group after years of being a member in November only to return this week. Shortly after I left, the market climbed quickly. Now I return, and Tom (and everyone else who has posted of late) indicates the need for extreme caution. Yep, right after I got back in the market. > However, for CANSLIMers, this is not a healthy market. And > for small cap players like myself, it's no market at all. Be > careful, and happy hunting. And the small cap arena differs from the last 11 months? Nah. Dave C. - - ------------------------------ Date: Sat, 27 Mar 1999 23:29:59 -0600 From: Dave Cameron Subject: [CANSLIM] Trading on expectations I've been asked what I've learned over the 5 months of my absence that prompted me to give it another go. Basically 3 things, which may be worth sharing. 1. As I indicated, I was successful at CANSLIM prior to my daughter's birth - but not after. I learned that I had developed a system which is a minor variant of CANSLIM which suits my personality. This system required me to spend a couple hours per day on analysis. Once I only had a half-hour per day, the system no longer was com- patible. Yet... I kept trying to use it. I've learned that this was foolish. 2. As Dan Musicant recalled, I have a fondness for small caps. My best successes were from small caps. However, in '98 nearly every breakout failed. Some of the stocks I owned have an EPS/RS of 97/25. Go figure. If they were large caps, they'd be 94/98. Part of the reason for the fondness was previous success. The other part was that both O'Neil and Ryan have stated verbally and in writing that the 'S' in CANSLIM means shares outstanding. O'Neil has said he almost never buys a stock with over 50 million shares outstanding. This was very ingrained in me. I have learned that size goes in cycles just like sectors. 3. I have learned that O'Neil's terminology is not in sync with mine. He constantly says "you need to cut your losses at 7% once you realize you've made a mistake". The problem is that I don't see it as a mistake. I have traded a system long enough to know that I only have a 60% probability of a breakout stock continuing on to higher ground. The other 40% will drop back into the base. As such, selecting these stocks is not a "mistake". Instead, it is part of the expectation. I don't know enough about what any particular stock is doing - so I devise shortcuts. With proper money man- agement, a 60% success rate should be ample. So why did I go wrong here? Because I kept listening to O'Neil, and he kept talking about correcting your mistakes. So... I kept trying to change my system to minimize the mistakes. After getting out with a fresh perspective, I realize that these are not mistakes. The system I use (close variant to CANSLIM) has a 40% failure rate inherently built in as part of the system. Following the rules explicitly will not improve this. Ignoring the rules will likely make it worse (and did). So... I trust many of you already know what I've learned, but for those that may be encountering similar problems - my words of wisdom are as follows: 1. Find a method for which your psychology is compatible. 2. Test the method to ensure both you have confidence and your rate of success is sufficient to make you money. 3. Don't concern yourself with what someone else says - it may be a terminology difference. Regards, Dave C. (with a thanks to Zoran, whose comments helped me learn this. I'm not sure if he's still on the group... but wish he was still posting) 2. - - ------------------------------ Date: Sat, 27 Mar 1999 23:31:47 -0600 From: Dave Cameron Subject: Re: [CANSLIM] Breakouts and the Market Craig, I am curious as to your rationale for requiring a 6-wk base. I'm not saying it should be shorter or longer - but your message seems to imply that this is a minimum for you. Just wondering why. Dave C> Craig Griffin wrote: > > EMC - broke out at 109 - 6 wk base, retest at 112, looks > good > AXP - broke out at 113, looks ok > BBY - broke out at 48 - 6 wk base, ugly retest, maybe ok > ANF - no recent base of 6 wks or longer - still rolling > - - ------------------------------ Date: Sun, 28 Mar 1999 08:54:33 +0100 From: "Marc Laniado" Subject: [CANSLIM] Power I made a mistake in my formula which I would like to correct: Ratio = (current assets - cash)/current liabilities I use this with an example of a stock EXDS. This company offers a range of services such as server hosting and Internet connectivity, the company lets businesses outsource the management and operation of their Internet sites. It is the Internet ntwk/sltns industry group (4th best for this year) Its sales are increasing 325% quarter on quarter compared with last year but has negative earnings. Its gross margins have increased each quarter and currently are 19% for the last quarter. It has $151 m cash in the bank, current liabilities of $47 m and a ratio of 0.3. It therefore has more than enough cash to pay off its current liabilities without problem. It can delay paying its dues and has most of its current assets in the form of cash. Its long term debt is $227 M. Net cash from operating activities is $-47 but again has more than enough cash to allow cash flow to go negative while it expands so fast. Watching its chart, it just broke out of a cup. It is owned by Van Wagoner Emerging Growth fund which specialises in Mid cap growth companies and has a great return for this year. According to DGO 15% is held by funds and 19% by management. To some extent this is for interest, but maybe this is one way that can be used to identify great companies without earnings but are great stock successes (about $30 to 150% in one year). Happy thoughts! Marc Marc E Laniado marclaniado@msn.com begin 666 Marc Elie Laniado.vcf M0D5'24XZ5D-!4D0-"DXZ3&%N:6%D;SM-87)C.T5L:64-"D9..DUA Subject: [CANSLIM] Valuing non earning companies I made a mistake in my formula which I would like to correct: Ratio = (current assets - cash)/current liabilities I use this with an example of a stock EXDS. This company offers a range of services such as server hosting and Internet connectivity, the company lets businesses outsource the management and operation of their Internet sites. It is the Internet ntwk/sltns industry group (4th best for this year) Its sales are increasing 325% quarter on quarter compared with last year but has negative earnings. Its gross margins have increased each quarter and currently are 19% for the last quarter. It has $151 m cash in the bank, current liabilities of $47 m and a ratio of 0.3. It therefore has more than enough cash to pay off its current liabilities without problem. It can delay paying its dues and has most of its current assets in the form of cash. Its long term debt is $227 M. Net cash from operating activities is $-47 but again has more than enough cash to allow cash flow to go negative while it expands so fast. Watching its chart, it just broke out of a cup. It is owned by Van Wagoner Emerging Growth fund which specialises in Mid cap growth companies and has a great return for this year. According to DGO 15% is held by funds and 19% by management. To some extent this is for interest, but maybe this is one way that can be used to identify great companies without earnings but are great stock successes (about $30 to 150% in one year). Happy thoughts! Marc - - ------------------------------ Date: Sun, 28 Mar 1999 12:06:07 +0100 From: "Marc Laniado" Subject: [CANSLIM] ANF Abercrombie and Fitch ANF went up on relatively low volume in the last few days. It has the most extraordinary fundamentals. Does anyone holding this think it should now be sold? Is it likely to pick up now given that the number of earnings warnings has actually diminished? Does this industry group do well with spring/summer clothing sales? Comments?? Marc E Laniado marclaniado@msn.com - - ------------------------------ Date: Sun, 28 Mar 1999 12:06:18 +0100 From: "Marc Laniado" Subject: [CANSLIM] BIG AND MID CAP BUY'S MSFT is forming a cup with handle and is due to launch Office 2000 - Do we believe this stock will now take off? Other big caps looking interesting NOKA - great earnings - about to break out TLAB ? broken out. This stock has great earnings and recently formed a deep base and handle. It broke through the peaks on relatively largish vol but not tremendously. This stock looks great but I am not sure - any comments?? NW mid cap NITE- at peak of first cup and volume and price now tightening - what do people thinks EPS 99 RS 99! OSSI -secondary base: price tightening and volume falling ADCT broke out ? products with CSCO? CSN -secondary base and just broke out INSS making cup with handle RFMD left part of cup? GENZ cup with handle but is it laggard compared with BGEN and AMGN Coming back to stocks with out earnings, David Ryan says in his tapes that he would consider buying a stock if the whole group is moving - This does not fit in with CANSLIM direct, but he must have a means of determining how he buys such stocks. Anyone know how? Regarding the market action generally, selling has been occurring but now the strong growth stocks look like their coming back esp with MSFT. If earnings come in ok then (eg Maytag MYG that said earnings would be better), then now is the time to watch out! Does anyone Veritas (VRTS) or Network Applicance (NTAP) - I do - they have been volatile but offer great prospects. I'm interested in what people think. Marc E Laniado marclaniado@msn.com - - ------------------------------ Date: Sun, 28 Mar 1999 12:05:28 +0100 From: "Marc Laniado" Subject: [CANSLIM] BIG AND MID CAP BUY'S MSFT is forming a cup with handle and is due to launch Office 2000 - Do we believe this stock will now take off? Other big caps looking interesting NOKA - great earnings - about to break out TLAB ? broken out. This stock has great earnings and recently formed a deep base and handle. It broke through the peaks on relatively largish vol but not tremendously. This stock looks great but I am not sure - any comments?? NW mid cap NITE- at peak of first cup and volume and price now tightening - what do people thinks EPS 99 RS 99! OSSI -secondary base: price tightening and volume falling ADCT broke out ? products with CSCO? CSN -secondary base and just broke out INSS making cup with handle RFMD left part of cup? GENZ cup with handle but is it laggard compared with BGEN and AMGN Coming back to stocks with out earnings, David Ryan says in his tapes that he would consider buying a stock if the whole group is moving - This does not fit in with CANSLIM direct, but he must have a means of determining how he buys such stocks. Anyone know how? Regarding the market action generally, selling has been occurring but now the strong growth stocks look like their coming back esp with MSFT. If earnings come in ok then (eg Maytag MYG that said earnings would be better), then now is the time to watch out! Does anyone Veritas (VRTS) or Network Applicance (NTAP) - I do - they have been volatile but offer great prospects. I'm interested in what people think. Marc E Laniado marclaniado@msn.com begin 666 Marc Elie Laniado.vcf M0D5'24XZ5D-!4D0-"DXZ3&%N:6%D;SM-87)C.T5L:64-"D9..DUA Subject: Re: [CANSLIM] DGO New Highs, "M" Sorry, Dave For several months now, I have been considering just cashing out and taking a vacation from the market. I have being seeing more neg earnings surprises than usual out of the small cap sector, which remains my sector of choice. Don't know if it's a result of greater difficulty in pricing and price increases, or some other factor. Interest rates have not changed enough to cause this. The economy has not slowed down, the global mkts haven't gotten any worse (if anything they improved), and likewise the strength of the dollar doesn't account for it, IMHO. Like you, my system requires several hours of disciplined work every day. And like the addition of your daughter, my continuing 65-70 hour work weeks have cut into my sleep time, and investing time to a lesser degree (sleep got cut first, down to about 4 hours/nite now, that's how obsessed I am). And during mkt hours, I am usually too busy to pay attention to the mkt. End result, I have made far too many mistakes, and cost myself money, due lack of time. That, combined with my overall view of the mkt, and esp the lack of breadth or decent leadership or new highs, makes me pretty bearish. Tom W stkguru@netside.net ICQ # 5568838 - -----Original Message----- From: Dave Cameron To: canslim@lists.xmission.com Date: Sunday, March 28, 1999 12:18 AM Subject: Re: [CANSLIM] DGO New Highs, "M" Tom Worley wrote: > Anyone sitting with cash and seriously considering > committing this cash to the market based on CANSLIM should > rethink this situation. Anyone not already in cash should be > at least carefully monitoring your weakest performers, as Oh sure, I come back into the group after 5 months and see the above paragraph posted my the eminent Mr. Worley. This can't be the same group I was in before. Or at least not the same Worley! The Tom Worley I know is always cautiously bullish. > However, for CANSLIMers, this is not a healthy market. And > for small cap players like myself, it's no market at all. Be > careful, and happy hunting. And the small cap arena differs from the last 11 months? Nah. Dave C. - - - - ------------------------------ Date: Sun, 28 Mar 1999 15:07:35 GMT From: musicant@autobahn.org (Dan Musicant) Subject: Re: [CANSLIM] Breakouts and the Market On Sat, 27 Mar 1999 23:31:47 -0600, you wrote: :Craig, : :I am curious as to your rationale for requiring a 6-wk base. I'm not = saying :it should be shorter or longer - but your message seems to imply that = this :is a minimum for you. Just wondering why. : :Dave C> : : :Craig Griffin wrote: :>=20 : :> EMC - broke out at 109 - 6 wk base, retest at 112, = looks :> good :> AXP - broke out at 113, looks ok :> BBY - broke out at 48 - 6 wk base, ugly retest, = maybe ok :> ANF - no recent base of 6 wks or longer - still = rolling :> Of course, I can't answer for Craig, but the longer a base, the better behaved the breakout, generally speaking, would be the rule. There may be a limitation on this if the base is *tooo* long, I'm not sure. However, generally a base of months is more apt to have momentum behind it than a base of weeks. Dan - - ------------------------------ Date: Sun, 28 Mar 1999 15:25:11 GMT From: musicant@autobahn.org (Dan Musicant) Subject: Small Cap Rotation (was Re: Small Caps (was Re: [CANSLIM] c&h)) On Sat, 27 Mar 1999 23:30:39 EST, you wrote: :This is my point,I am not saying that I or anyone else should start to = pile :all their money into small caps based on two days.Point is that when = things :seem as bad as they can get and everyone on the street is selling (i,e, = people :dumping thier small cap fund in lieu of large caps as stated in prior = post) :this tells me its time to do my homework and find the best small caps in :strong industries with storng EPS and RS and be ready to buy.Remember, = the :trends can turn in a hurry and it only takes a short time to turn an = ugly :chart into a good looking one or vice versa.I am not making any crazy :predictions here,just watching and waiting so I can be well ahead of the :crowd.Chris. I had a little fantasy this morning based on the present scenario, and certainly don't know if this will presage future events. However, I think there's a significant chance that the markets will stall at this point and we will see rotation (at least SOME rotation) ... presumably into small caps and whatever sectors have underperformed. Here's my rationale (it IS more than a fantasy!): When the DOW first tried to break 1000 back in 1972, it failed to do so. Do you know how long it took it to break that *jinx*?? SIX YEARS!!! The DOW just tried to break 10,000. Now you can argue that 10,000 doesn't have the ring of 1000, and I will not gainsay this. This is all rather speculative. However, consider this: programmed trading is having a bigger and bigger effect these days. The 10,000 mark was not sustained on a closing basis due to the influence of programmed trading (there may have been other significant factors, too). When the index was over 10,000 intraday, computer programs spat out sell orders and the market swung down. This may happen again, and who knows how powerfully, *IF* the DOW gets up in that range again. I have noticed that the DJIA had a seriously difficult time overcoming resistance at around the 9300 level for something like a year, and I think somewhat longer. I think this suggests that 10,000 may shape up to be a major barrier, if only psychological, perhaps mimicing the resistance at 9300 and maybe on a grander scale.=20 So, what could happen? When the market stalls, people go "what's wrong"? This can lead to rotation. Rotation is necessary and cyclical and may need some precipitating and catalysing circumstances. The 10,000 resistance may be that circumstance, or part of it. Dan - - ------------------------------ Date: Sun, 28 Mar 1999 15:33:03 -0500 From: Craig Griffin Subject: Re: [CANSLIM] Breakouts and the Market Dave wrote: >Craig, > >I am curious as to your rationale for requiring a 6-wk base. I'm not saying >it should be shorter or longer - but your message seems to imply that this >is a minimum for you. Just wondering why. > >Dave C> Hi Dave, Glad to have you back on the list. Thanks for the question. Dan already gave you a good answer. Generally speaking, it is just where I feel comfortable that the odds are good that I will not be stopped out at 8% too often if the base is longer than 6 and preferably 8 weeks. I can maybe add a few other insights about shorter "bases"... O'Neil generally recommends an 8 week base as the minimum. But he says that sometimes it is ok to buy off of a 5 or 6 or 7 week base with strong stocks. But this leaves a lot to the interpretation of the individual (what is "sometimes", "strong"?). I have heard Woodward say that sometimes the very best stocks just don't give you that much opportunity and that once in a while he will buy a b/o from a 4 week "base". But he says it is a real "cha cha cha" play, by which he means high risk gamble. My sense is that 6-8 weeks is long enough to offer at least some support when the stock pulls back, but that shorter "bases" offer very little support and can much more easily be knifed through on a bit of bad news or change in market conditions. One other thought ... flags and "ledges" are not really bases in the sense of offering support, IMO. But they are "consolidation" areas where the stock is backing and filling. Sometimes I buy from these formations too, but I don't think of it as being a base - so I tend to take smaller positions. My definition of a ledge is a sort of high handle. It frequently occurs when a stock breaks out of a cup or saucer formation with very little handle or no handle. Sometimes such a stock will advance 8, 10 or 12% and pause and form a tight "ledge" just at or slightly above the top of the base. This ledge is usually 1-2 weeks long and typically is very flat or maybe droops down slightly. It should be no more than 10% deep. Then volume will sometimes come in and it will breakout of the ledge and sometimes I will buy it there, even though it is up more than 10% from the original pivot (but usually no more than 15%). Of course if it falls out of the bottom of the ledge and back into the base, generally all bets are off. So those are my exceptions to my general rule of looking for breakouts from 8 week or longer bases. And my thinking is that less than 6 weeks is really not a "base", so to speak. By example, if you "knew" EMC as a stock and were looking for an opportunity to own it, the recent breakout from a 6 week base looks like a good chance. Especially given the reasonably high volume on 3/8 and 3/9. Similarly, with ANF, the best one could do is a little flat 4-5 week "base" (depending on whether you count from 1/29 or 2/4) which ended with a "breakout" on 3/2. Looks better on a weekly chart than a daily, but still a bit short for my taste. ANF offers an interesting chart. Since it left the big cup formation, it formed a ragged looking "ledge" which it left without much volume (floated up). And since has formed 2 "bases", both of 4 to 5 weeks. These three opportunities to get in have been the best chances during a 60% advance which began 11/11/98 with big volume (but which had no clear pivot point). Strange price volume behavior, but working fine so far. Best Regards, Craig - - ------------------------------ End of canslim-digest V2 #565 ***************************** To unsubscribe to canslim-digest, send an email to "majordomo@xmission.com" with "unsubscribe canslim-digest" in the body of the message. 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