From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #1925 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 1925 In this issue: Re: [CANSLIM] breakouts - return to base ---------------------------------------------------------------------- Date: Mon, 10 Dec 2001 21:24:42 -0600 From: "Norman" Subject: Re: [CANSLIM] breakouts - return to base This is a multi-part message in MIME format. - ------=_NextPart_000_018A_01C181C1.150BA340 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable 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_018A_01C181C1.150BA340 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
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
To: canslim@lists.xmission.com=
Sent: Monday, December 10, 2001 = 9:07=20 PM
Subject: Re: [CANSLIM] = breakouts - return=20 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 before=20 it would have ever reached a 7% loss. I saw 4 tails in short order = after the=20 B/O. Very bad pattern and reason enough to sell. Even if you waited = until the=20 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=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 made=20 by WON and the IBD lately that in people's haste to "get in" they are = often=20 not doing their fundamental homework, buying into faulty (riskier) = technical=20 patterns, buying extended stocks, or failing to account for group = action.=20 Given that "M" is so unclear right now, I can understand why you'd = want to=20 take a few percentage points and run for cover. Over the long run, = however,=20 I'd argue that it's not the most profitable intermediate term/CANSLIM=20 strategy.
 
Katherine
----- Original Message -----
From:=20 camelot.homes@charter.net =
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 123=20 effect-go through their b/o with maybe a 10% increase-then they fall = below=20 their pivot point and one might take their WON loss of 7-8%. it = seems to me=20 its better to take that 5-10% profit instead of taking a 8% loss but = hoping=20 that  maybe 1 out of 10 of your stocks might increase 50-300%.=20 david
----- Original Message ----- =
From:=20 Katherine=20 Malm
To: canslim@lists.xmission.com= =20
Sent: Monday, December 10, = 2001 8:06=20 PM
Subject: Re: [CANSLIM] = breakouts -=20 return to base

David,
 
The number of stocks suggested = depends on the=20 amount of money you have in your CANSLIM account. I think WON has = some=20 guidelines on this, but I don't remember them off the top of my = head. On=20 the surface, it would seem to make sense to concentrate a big = portion of=20 the total money in a few stocks, each of which might get you = 50-200%. But=20 why not just buy *one* stock then? The main reason for = keeping a=20 certain number of stocks is to minimize the risk of loss on any = one entry=20 as a percent of your total portfolio. Say for example, you have 10 = stocks.=20 That means the maximum risk to your total portfolio on entry is = 10%*(-8%)=20 =3D 0.8%. Less than 1% of your total portfolio. Another thing to = remember is=20 that not every entry is a winning trade. You can stack the odds in = your=20 favor, but there is still always a risk of loss. In fact, it's = common to=20 have a series of very small losses, but the big winners over time = far=20 outweigh them in total profits. Its all about = 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] = breakouts=20 - 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 into=20 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 term=20 advance. Small pullbacks here and there mean little over this = time=20 frame. It's repeated high volume pull backs (distribution) = that are=20 problematic. One of the things that always stuck with me from = Nicholas=20 Darvas' book "How I made $2 million in the Stock Market" was = the=20 simple phrase "I have no reason to sell a stock that's = rising." In=20 other words, skipping town too early could very well lower = your=20 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 than=20 CANSLIM.
 
Katherine
----- Original Message ----- =
From:=20 camelot.homes@charter.net=20
To: canslim@lists.xmission.com= =20
Sent: Monday, = December 10, 2001=20 6:24 PM
Subject: Re: = [CANSLIM]=20 breakouts - return to base

katherine and chris, sorry = i have been=20 away. i always wonder if the most likely breakout will rise = 5 to=20 20%-is it better to take those small profits on alot of = stocks,=20 then wait longer for possible bigger profits? = david
----- Original Message = - -----
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% return=20 rate is a pullback within the first 12 days (this is the = average=20 for the study). Bulkowski states  that none take = longer than=20 30 days. After that, it goes beyond throwback and falls = into=20 "normal price action" territory.
 
With regard to the WON = 20% rule and=20 profit taking. Bulkowski gives some statistics that I = think throw=20 some light. He says that 47% of stocks reach a high after = breakout=20 in less than 3 months. 35% take longer than 6 months. Most = likely=20 rise? 10-20%. Average rise? 38%. His frequency = distribution shows=20 that the longer it takes to reach the peak, the larger the = average=20 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 the=20 uptrend is persistent enough to carry the stock further = than the=20 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 10,=20 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% of=20 breakouts return to the base. I believe it is more than = that.=20 I'm not sure that it is 75%, but it might be. For that = reason=20 WON states in his book you must take some profits when = they hit=20 20%. On one of the IBD tapes they state to profits in = 1/2 of=20 positions reaching 25%. These are because of the high = rate of=20 pull backs. If you don't do this then you are forced to = use the=20 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 = 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, = December=20 10, 2001 9:49 AM
To:=20 canslim@lists.xmission.com
Subject: Re: = [CANSLIM]=20 low volume breakouts

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

Hi = David,
 
The question you = ask is a good=20 one. Demanding controlled study proof of a guideline = like=20 this is important, as it makes an underlying = assumption=20 about technical patterns which may or may not = trigger a buy.=20 I pulled out my "Encyclopedia of Chart Patterns" by = Thomas=20 Bulkowski to answer this question. In this book, the = author=20 does statistical studies on chart formation and = there is an=20 entire chapter devoted to the C&H.=20 (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 list.=20 Take a look at the daily chart from 10/3 to now. You = can see=20 that SONC tried very hard on several days to break = out of=20 its consolidation, but fell back and eventually = gapped down.=20 The low volume B/O's don't always mean the stock = will fail,=20 just that it's not yet ready to move on. I like to = have the=20 odds in my favor, so I'm always willing to wait = until=20 there's proof of the pudding.
 
Back to Bulkowski. = In the=20 C&H formation, the failure rate is 26%. If you = wait for=20 an upside breakout, the failure rate falls to 10%. = Stocks=20 retrace back to the B/O point 75% of the time = (average time=20 12 days). Waiting for the throwback increases the = success=20 rate another 1%. Typical B/O volume is 180% above = the prior=20 day and stays high for the following week. = Interestingly, he=20 says removing the high volume B/O criteria does hurt = performance, but only minimally. This is an = excellent=20 chapter on C&H and, based on the statistical = evidence,=20  the author makes other conclusions that lead = to=20 particular trading tactics. There are several = additional=20 criteria that WON would require of a stock forming a = C&H=20 and then breaking out, such as rising RS, high group = RS,=20 underlying fundamental characteristics, etc. that = are not=20 included in the author's study. My own conclusions,=20 anecdotally, are that if these other criteria are = met AND=20 you get a high volume B/O, the odds are in your = favor. (No=20 statistical 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  a=20 high volume breakout past the pivot point?=20 = david
- ------=_NextPart_000_018A_01C181C1.150BA340-- - - - -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 #1925 ****************************** 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.