From: owner-canslim-digest@lists.xmission.com (canslim-digest) To: canslim-digest@lists.xmission.com Subject: canslim-digest V2 #2814 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 Friday, August 16 2002 Volume 02 : Number 2814 In this issue: Re: [CANSLIM] stop losses and profits RE: [CANSLIM] Recent activity Re: [CANSLIM] Recent activity ---------------------------------------------------------------------- Date: Fri, 16 Aug 2002 11:47:28 -0700 From: "NANCY POLCARO" Subject: Re: [CANSLIM] stop losses and profits Katherine-let me see if I am following correctly please. My question is that previously I understood that after the third rise in a base formation a stock may correct by dropping below the previous base and then starting up again if all is well with the stock. Then the bases start to be recounted again. In this case, if you just bought in during the third rise in the base, which from my understanding would probably go up between 15%(Mikes figure) and 25%( the amount of each rise in a base of a healthy stock) you would sell(not you personally but someone with my amount of experience or the like) before the 8% drop, to protect your gain. Then follow the stock and watch for a buy in again at some point depending on how the stock acts from this point on? Is that close to correct ??? Thanks for your thoughts Nancy >From: "Katherine Malm" >Reply-To: canslim@lists.xmission.com >To: >Subject: Re: [CANSLIM] stop losses and profits >Date: Fri, 16 Aug 2002 13:09:30 -0500 > >HI Mike, > >I think you'll get a hundred different answers on this one, so I'll just >answer from my personal point of view. > >If a stock breaks out of a well-formed base on volume, then takes 6 weeks >to >rise 10 or 15 percent, then I sure wouldn't want to risk 8% loss at that >point, even if it were falling back "normally" as you suggest. To me that >means that no sell signals were triggered on the way up, and that the >general pattern included up days on higher volume than down days, support >at >the 50 day moving average, etc. My personal preference, however, would be >to >move my stop to breakeven or slightly below (3-4% max, depending on market >conditions) if the stock had risen like this. > >Katherine > > >----- Original Message ----- >From: >To: >Sent: Friday, August 16, 2002 9:17 AM >Subject: [CANSLIM] stop losses and profits > > >| Group, >| >| In reading WON, he makes a statement that you should never let a stock in >| which you are up 10-15% turn into a loss, but I was wondering you have >| interpreted that along with the sell at no more than an 8% loss rule. >| >| Say you buy a stock, at a breakout, and it rises 10-15% over a few (6+ >| weeks), and then is started to correct....Do you sell at you break even >| point, or do you allow it to go to your 8% loss point before selling? >This >| is assuming that the stock is NOT giving any strong sell signals, but >| appears to be pulling back "normally". >| >| Thanks >| >| Mike Niemotka , PE >| Sr. Principal Engineer >| Baxter Healthcare Corporation >| Route 120 & Wilson Road >| Round Lake, IL 60073 >| Tel (847) 270-4075 >| Fax (847) 270-4525 >| michael_niemotka@baxter.com >| >| >| >| - >| -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. _________________________________________________________________ Send and receive Hotmail on your mobile device: http://mobile.msn.com - - - -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: Fri, 16 Aug 2002 13:56:05 -0500 From: "Kelly Short" Subject: RE: [CANSLIM] Recent activity This is a multi-part message in MIME format. - ------_=_NextPart_001_01C24556.92EB087E Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Eric, =20 I'll get back to you next Wednesday when I'm through digesting all your = points.... Kelly (my head hurts) - -----Original Message----- From: Eric Jaenike [mailto:ericjaenike@yahoo.com] Sent: Friday, August 16, 2002 1:40 PM To: canslim group Subject: [CANSLIM] Recent activity Hi all- Just wanted to throw out a few thoughts and get some feedback. I am not terribly sanguine about the market right now, for a number of = reasons. Before I go into why, I will review the things I see as = bullish. If anyone has additional bull thoughts, please let me know. Bull: 1.Heavy volume low mid-June, can be sign of climax bottom with sellers = clearing out.=20 2. Lots of secondary indicators flash extremes generally associated with = bottoms, including put/call, % bullish/bearish, nasdaq vs. NYSE trading = volume, etc. 3. Rally confirms on indices. 4. Generally, up volume advances, down volume pullbacks. 5. Some breakouts occurring. These include (without regard to whether = they have succeeded or not) CTSH FCN IMN XRAY DORL WTW PIXR CSTR ISLE = BYD APOL. 6. Some potential leadership forming, including gaming (BYD ISLE), = medical (LNCR AMSG HSIC), education (APOL CECO COCO), HMOs (CVH SIE = MME), regional banks (if you're willing to include that group as = leadership), retail (JASA PETM MIK KSS). 7. Skepticism about rally. 8. Certain secondary factors, such as the addressing of corporate = governance issues, potentially improved accounting, recent strengthening = of the dollar, etc 9. Increased insider buying. 10. Valuations have become compelling in certain areas/companies. The concerns I have are both fundamental and technical. Technical: 1. Secular bears generally don't end with a bang, but with a whimper = ('29, '74). Tendency toward climax bottom with reversal, followed by = lower volume selloff into true bottom. 2. Secondary indicators are area code indicators. In a prolonged, hard = bear, they can be early and flash signals repeatedly before market has = truly bottomed. Unreliable. 3. Rally confirm came very late on Dow and S&P, came on low volume on = Nasdaq and S&P 600 following large givebacks/distribution. Both late = confirms and excessive givebacks are signs of weakness, not strength. 4. While volume on up days has been up and on down days, down, volume = has generally been very light. I prefer to see strong volume confirming, = not just up volume. This might be seasonal, but it seems very = suspicious. 5. There have been a number of up days spurred by positive news (ex. = Thurs 8/8 Brazil loan approval announcement, CSCO call, etc.) News = driven rallies are suspect and failure prone. 6. A number of up days have been caused by buy programs, which create = artifically positive looking days. Wed. was a great example. There has = also been support from institutional, charter based reallocations from = bonds (think 40 yr low on Treasury yield) to stocks. This is not = discretionary, informed buying. 7. There appears to be short covering activity. Not sustainable in = longer term. 8. Oils are rallying. Generally not a good sign for market. 9. While there have been breakouts, they have not been particularly = numerous, nor have they been that powerful. I reviewed my breakout list = from last September. I counted 16 reasonably solid breakouts from the = low through 10/15 (CACI AZO SANG RMCI AHMH APOL CPRT AMSG NDN MYL BVF = CRL FRED MIK USPH ADVP). I count only 11 in the roughly same time period = now (CTSH SIE IMH XRAY DORL WTW PIXR CSTR ISLE BYD APOL. Not counting = banks, and I might have missed some). It appears that there are fewer, = or at least not more, breakouts over the recent period. In reviewing the = lists, it also appears to me that there was generally tighter, more = consistent, and more prominent leadership back then. That rally, of = course, failed rather quickly. I actually consider the late '01 rally to = have been more of an oversold bounce than a true rally. 10. Expanding on #9, I am not enamored of the power of the breakouts. = Ex. WTW nasty bearish reversal tuesday, declining volume on rally = resumption since. This is not the type of action I want to see. 11. There has been too much strength in tech in the past couple of days = relative to the general market, especially Wed. I do not believe there = is much, if any, chance that tech will provide sustained leadership = here, and especially not large cap tech. See below for more. 12. Lots of broken charts, whippy runups. Fundamentals: 1. Recent weakening in consumer spending and sentiment. Generally = lackluster employment. 2. Market never got "cheap". Some have argued that on a P/E basis the = market got to acceptable trough valuations. Without going into detail, I = have found those arguments generally lacking.=20 3. Tech fundamentals are bad, and appear to be getting worse. Look at = all the recent calls in the semiconductor space (AMAT TSCM KLIC, etc). = Revenue and earnings guidedowns, capacity utilization dropping, etc. I = think I posted a piece on this previously. That means the market will = have to rally through bad tech news in the upcoming earnings period, = with tech stocks going from very expensive to even more expensive. I do = not consider the Dell or CSCO calls positive for the industry in = general. They are share takers, and are benefitting at the expense of = the rest of their respective industries. Recall, as Dell noted in its = conference call, total PC sales in the second quarter DROPPED 10%. Note = the relatively poor action in the SOX. 4. We have shifted short term influences in the market. 5 weeks ago, = corporate governance/bad macroeconomic numbers were the short term = driving force, pushing the market to its lows. We digested that = information as we hit the lows on volume. At that point, the market was = poised to spring back, either sustainably or unsustainably. We shifted = to a new short term driving factor: the oversold condition of the market = (note how all negative news is being ignored- ex. AMAT horrible call. = That is, IMO, because news is not the current short term driving factor; = the technical condition of the market is). This short term factor is = being augmented by asset allocation and short covering. However, this = short term factor will eventually dissipate, and we will get a new = driving force. Given how poor, IMO, the quality of this rally has been, = I think the market will be primed to latch onto something negative. We = are currently in a bit of a news vacuum. If I'm not mistaken, we should = be getting preannouncements starting sometime in September, as well as = additional economic insight. If this data comes in poorly, the market = might start reacting to it negatively, and this could be our new short = term driving force. 5. There is still "headline risk" in the market. This would include = things like the service and equipment swaps that Q has done with a = variety of companies, including IBM and BLS (not widely known). GE has = seen order slowdowns. There are a host of bankruptcies yet to be = announced. F is in trouble. Housing looks vulnerable. Retail sales were = weak the week of Aug 10, BBY preannounced, etc, so the consumer is still = vulnerable. There are other problems as well. While I undertand that it = often looks darkest before the dawn, it also looks darkest before = midnight. 6. Europe looks terrible. Brazil is still a threat, depending on who = wins the presidential elections, and we could still lose South America. 7. There is annecdotal evidence questioning the strength of the rally. = Ex. pulp and paper inventories were up above typical seasonal increases, = Ingersal Rand saw no evidence of an economic comeback, etc. 8. Yield spreads are very wide. 9. Energy sector debt at risk ($500 B), 3G programs, which were supposed = to support telecom debt, have been weak. 10. First Call forward earnings growth has been coming down too quickly. There are, of course, others. I would be willing to overlook many of = these negatives IF the rally looked better. To me, it looks too much = like the type of bounce we saw in September, but with a shorter = duration. Any thoughts? Eric =20 _____ =20 Do You Yahoo!? HotJobs, = a = Yahoo! service - Search Thousands of New Jobs=20 _____ =20 For your protection, this e-mail message has been scanned for viruses.=20 Visit us at http://www.neoris.com/=20 _____ =20 - ------_=_NextPart_001_01C24556.92EB087E Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Eric,
 
I'll=20 get back to you next Wednesday when I'm through digesting all your=20 points....   Kelly (my head hurts)
-----Original Message-----
From: Eric Jaenike=20 [mailto:ericjaenike@yahoo.com]
Sent: Friday, August 16, 2002 = 1:40=20 PM
To: canslim group
Subject: [CANSLIM] Recent=20 activity

Hi all-

Just wanted to throw out a few thoughts and get some feedback.

I am not terribly sanguine about the market right now, for a number = of=20 reasons. Before I go into why, I will review the things I see as = bullish. If=20 anyone has additional bull thoughts, please let me know.

Bull:

1.Heavy volume low mid-June, can be sign of climax bottom with = sellers=20 clearing out.

2. Lots of secondary indicators flash extremes generally associated = with=20 bottoms, including put/call, % bullish/bearish, nasdaq vs. NYSE = trading=20 volume, etc.

3. Rally confirms on indices.

4. Generally, up volume advances, down volume pullbacks.

5. Some breakouts occurring. These include (without regard to = whether they=20 have succeeded or not) CTSH FCN IMN XRAY DORL WTW PIXR CSTR ISLE BYD = APOL.

6. Some potential leadership forming, including gaming (BYD ISLE), = medical=20 (LNCR AMSG HSIC), education (APOL CECO COCO), HMOs (CVH SIE MME), = regional=20 banks (if you're willing to include that group as leadership), retail = (JASA=20 PETM MIK KSS).

7. Skepticism about rally.

8. Certain secondary factors, such as the addressing of corporate=20 governance issues, potentially improved accounting, recent = strengthening of=20 the dollar, etc

9. Increased insider buying.

10. Valuations have become compelling in certain = areas/companies.

The concerns I have are both fundamental and technical.

Technical:

1. Secular bears generally don't end with a bang, but with a = whimper ('29,=20 '74). Tendency toward climax bottom with reversal, followed by lower = volume=20 selloff into true bottom.

2. Secondary indicators are area code indicators. In a prolonged, = hard=20 bear, they can be early and flash signals repeatedly before = market  has=20 truly bottomed. Unreliable.

3. Rally confirm came very late on Dow and S&P, came on low = volume on=20 Nasdaq and S&P 600 following large givebacks/distribution. Both = late=20 confirms and excessive givebacks are signs of weakness, not = strength.

4. While volume on up days has been up and on down days, down, = volume has=20 generally been very light. I prefer to see strong volume confirming, = not just=20 up volume. This might be seasonal, but it seems very suspicious.

5. There have been a number of up days spurred by positive news = (ex. Thurs=20 8/8 Brazil loan approval announcement, CSCO call, etc.) News driven = rallies=20 are suspect and failure prone.

6. A number of up days have been caused by buy programs, which = create=20 artifically positive looking days. Wed. was a great example. There has = also=20 been support from institutional, charter based reallocations from = bonds (think=20 40 yr low on Treasury yield) to stocks. This is not discretionary, = informed=20 buying.

7. There appears to be short covering activity. Not sustainable in = longer=20 term.

8. Oils are rallying. Generally not a good sign for market.

9. While there have been breakouts, they have not been particularly = numerous, nor have they been that powerful. I reviewed my breakout = list from=20 last September. I counted 16 reasonably solid breakouts from the low = through=20 10/15 (CACI AZO SANG RMCI AHMH APOL CPRT AMSG NDN MYL BVF CRL FRED MIK = USPH=20 ADVP). I count only 11 in the roughly same time period now (CTSH SIE = IMH XRAY=20 DORL  WTW PIXR CSTR ISLE BYD APOL. Not counting banks, and I = might have=20 missed some). It appears that there are fewer, or at least not more, = breakouts=20 over the recent period. In reviewing the lists, it also appears to me = that=20 there was generally tighter, more consistent, and more=20 prominent leadership back then. That rally, of course, failed = rather=20 quickly. I actually consider the late '01 rally to have been more of = an=20 oversold bounce than a true rally.

10. Expanding on #9, I am not enamored of the power of the = breakouts. Ex.=20 WTW nasty bearish reversal tuesday, declining volume on rally = resumption=20 since. This is not the type of action I want to see.

11. There has been too much strength in tech in the past couple of = days=20 relative to the general market, especially Wed. I do not believe there = is=20 much, if any, chance that tech will provide sustained leadership here, = and=20 especially not large cap tech. See below for more.

12. Lots of broken charts, whippy runups.

Fundamentals:

1. Recent weakening in consumer spending and sentiment. Generally=20 lackluster employment.

2. Market never got "cheap". Some have argued that on a P/E basis = the=20 market got to acceptable trough valuations. Without going into detail, = I have=20 found those arguments generally lacking.

3. Tech fundamentals are bad, and appear to be getting worse. Look = at all=20 the recent calls in the semiconductor space (AMAT TSCM KLIC, etc). = Revenue and=20 earnings guidedowns, capacity utilization dropping, etc. I think I = posted a=20 piece on this previously. That means the market will have to rally = through bad=20 tech news in the upcoming earnings period, with tech stocks going from = very=20 expensive to even more expensive. I do not consider the Dell or CSCO = calls=20 positive for the industry in general. They are share takers, and are=20 benefitting at the expense of the rest of their respective industries. = Recall,=20 as Dell noted in its conference call, total PC sales in the second = quarter=20 DROPPED 10%. Note the relatively poor action in the SOX.

4. We have shifted short term influences in the market. 5 weeks = ago,=20 corporate governance/bad macroeconomic numbers were the short term = driving=20 force, pushing the market to its lows. We digested that information as = we hit=20 the lows on volume. At that point, the market was poised to spring = back,=20 either sustainably or unsustainably. We shifted to a new short term = driving=20 factor: the oversold condition of the market (note how all negative = news is=20 being ignored- ex. AMAT horrible call. That is, IMO, because news is = not the=20 current short term driving factor; the technical condition of the = market is).=20 This short term factor is being augmented by asset allocation and = short=20 covering. However, this short term factor will eventually dissipate, = and we=20 will get a new driving force. Given how poor, IMO, the quality of this = rally=20 has been, I think the market will be primed to latch onto something = negative.=20 We are currently in a bit of a news vacuum. If I'm not mistaken, we = should be=20 getting preannouncements starting sometime in September, as well as = additional=20 economic insight. If this data comes in poorly, the market might start = reacting to it negatively, and this could be our new short term = driving=20 force.

5. There is still "headline risk" in the market. This would include = things=20 like the service and equipment swaps that Q has done with a variety of = companies, including IBM and BLS (not widely known). GE has seen = order=20 slowdowns. There are a host of bankruptcies yet to be announced. F is = in=20 trouble. Housing looks vulnerable. Retail sales were weak the week of = Aug 10,=20 BBY preannounced, etc, so the consumer is still vulnerable. There are = other=20 problems as well. While I undertand that it often looks darkest before = the=20 dawn, it also looks darkest before midnight.

6. Europe looks terrible. Brazil is still a threat, depending on = who wins=20 the presidential elections, and we could still lose South America.

7. There is annecdotal evidence questioning the strength of the = rally. Ex.=20 pulp and paper inventories were up above typical seasonal increases, = Ingersal=20 Rand saw no evidence of an economic comeback, etc.

8. Yield spreads are very wide.

9. Energy sector debt at risk ($500 B), 3G programs, which were = supposed to=20 support telecom debt, have been weak.

10. First Call forward earnings growth has been coming down too=20 quickly.

There are, of course, others. I would be willing to overlook many = of these=20 negatives IF the rally looked better. To me, it looks too much like = the type=20 of bounce we saw in September, but with a shorter duration.

Any thoughts?

Eric

 


Do You Yahoo!?
= HotJobs,=20 a Yahoo! service - Search Thousands of New Jobs=20
For your protection, this e-mail message has been scanned for viruses. =

Visit us at http://www.neoris.com/=20

- ------_=_NextPart_001_01C24556.92EB087E-- - - - -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: Fri, 16 Aug 2002 14:01:46 -0500 From: "Katherine Malm" Subject: Re: [CANSLIM] Recent activity This is a multi-part message in MIME format. - ------=_NextPart_000_00C5_01C2452D.75453570 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Hi Eric, Thoughts? Thoughts? How about "oh my goodness, what an *incredible* = analysis!" Each and every point seems to have point/counterpoint written = all over it --I'm looking forward to reading some great posts as a = result of your efforts. One particular question came to mind when reading your notes. That is, = in any situation where there are pros/cons, must we resolve each and = every one of them in order to resolve a course of action? If I were = faced with two choices, each with a set of pros/cons, how would I chose = between them? In this case, given the strength of arguments that you = gave in both directions, my question to you would simply be, "what = action will you take given what you have observed and what contingency = plans would you put into place upon execution?" At some level, it seems = that when given the preponderance of evidence on the markets as a whole = that our choice as investors is more importantly, "am I willing to bet = the farm one direction or the other, do I want to stand aside until the = evidence is more squarely positioned in one camp vs another, or will I = step in gingerly in one direction or the other while adding to that = position as the evidence mounts?" Katherine ----- Original Message -----=20 From: Eric Jaenike=20 To: canslim group=20 Sent: Friday, August 16, 2002 1:39 PM Subject: [CANSLIM] Recent activity Hi all- Just wanted to throw out a few thoughts and get some feedback. I am not terribly sanguine about the market right now, for a number of = reasons. Before I go into why, I will review the things I see as = bullish. If anyone has additional bull thoughts, please let me know. Bull: 1.Heavy volume low mid-June, can be sign of climax bottom with sellers = clearing out.=20 2. Lots of secondary indicators flash extremes generally associated = with bottoms, including put/call, % bullish/bearish, nasdaq vs. NYSE = trading volume, etc. 3. Rally confirms on indices. 4. Generally, up volume advances, down volume pullbacks. 5. Some breakouts occurring. These include (without regard to whether = they have succeeded or not) CTSH FCN IMN XRAY DORL WTW PIXR CSTR ISLE = BYD APOL. 6. Some potential leadership forming, including gaming (BYD ISLE), = medical (LNCR AMSG HSIC), education (APOL CECO COCO), HMOs (CVH SIE = MME), regional banks (if you're willing to include that group as = leadership), retail (JASA PETM MIK KSS). 7. Skepticism about rally. 8. Certain secondary factors, such as the addressing of corporate = governance issues, potentially improved accounting, recent strengthening = of the dollar, etc 9. Increased insider buying. 10. Valuations have become compelling in certain areas/companies. The concerns I have are both fundamental and technical. Technical: 1. Secular bears generally don't end with a bang, but with a whimper = ('29, '74). Tendency toward climax bottom with reversal, followed by = lower volume selloff into true bottom. 2. Secondary indicators are area code indicators. In a prolonged, hard = bear, they can be early and flash signals repeatedly before market has = truly bottomed. Unreliable. 3. Rally confirm came very late on Dow and S&P, came on low volume on = Nasdaq and S&P 600 following large givebacks/distribution. Both late = confirms and excessive givebacks are signs of weakness, not strength. 4. While volume on up days has been up and on down days, down, volume = has generally been very light. I prefer to see strong volume confirming, = not just up volume. This might be seasonal, but it seems very = suspicious. 5. There have been a number of up days spurred by positive news (ex. = Thurs 8/8 Brazil loan approval announcement, CSCO call, etc.) News = driven rallies are suspect and failure prone. 6. A number of up days have been caused by buy programs, which create = artifically positive looking days. Wed. was a great example. There has = also been support from institutional, charter based reallocations from = bonds (think 40 yr low on Treasury yield) to stocks. This is not = discretionary, informed buying. 7. There appears to be short covering activity. Not sustainable in = longer term. 8. Oils are rallying. Generally not a good sign for market. 9. While there have been breakouts, they have not been particularly = numerous, nor have they been that powerful. I reviewed my breakout list = from last September. I counted 16 reasonably solid breakouts from the = low through 10/15 (CACI AZO SANG RMCI AHMH APOL CPRT AMSG NDN MYL BVF = CRL FRED MIK USPH ADVP). I count only 11 in the roughly same time period = now (CTSH SIE IMH XRAY DORL WTW PIXR CSTR ISLE BYD APOL. Not counting = banks, and I might have missed some). It appears that there are fewer, = or at least not more, breakouts over the recent period. In reviewing the = lists, it also appears to me that there was generally tighter, more = consistent, and more prominent leadership back then. That rally, of = course, failed rather quickly. I actually consider the late '01 rally to = have been more of an oversold bounce than a true rally. 10. Expanding on #9, I am not enamored of the power of the breakouts. = Ex. WTW nasty bearish reversal tuesday, declining volume on rally = resumption since. This is not the type of action I want to see. 11. There has been too much strength in tech in the past couple of = days relative to the general market, especially Wed. I do not believe = there is much, if any, chance that tech will provide sustained = leadership here, and especially not large cap tech. See below for more. 12. Lots of broken charts, whippy runups. Fundamentals: 1. Recent weakening in consumer spending and sentiment. Generally = lackluster employment. 2. Market never got "cheap". Some have argued that on a P/E basis the = market got to acceptable trough valuations. Without going into detail, I = have found those arguments generally lacking.=20 3. Tech fundamentals are bad, and appear to be getting worse. Look at = all the recent calls in the semiconductor space (AMAT TSCM KLIC, etc). = Revenue and earnings guidedowns, capacity utilization dropping, etc. I = think I posted a piece on this previously. That means the market will = have to rally through bad tech news in the upcoming earnings period, = with tech stocks going from very expensive to even more expensive. I do = not consider the Dell or CSCO calls positive for the industry in = general. They are share takers, and are benefitting at the expense of = the rest of their respective industries. Recall, as Dell noted in its = conference call, total PC sales in the second quarter DROPPED 10%. Note = the relatively poor action in the SOX. 4. We have shifted short term influences in the market. 5 weeks ago, = corporate governance/bad macroeconomic numbers were the short term = driving force, pushing the market to its lows. We digested that = information as we hit the lows on volume. At that point, the market was = poised to spring back, either sustainably or unsustainably. We shifted = to a new short term driving factor: the oversold condition of the market = (note how all negative news is being ignored- ex. AMAT horrible call. = That is, IMO, because news is not the current short term driving factor; = the technical condition of the market is). This short term factor is = being augmented by asset allocation and short covering. However, this = short term factor will eventually dissipate, and we will get a new = driving force. Given how poor, IMO, the quality of this rally has been, = I think the market will be primed to latch onto something negative. We = are currently in a bit of a news vacuum. If I'm not mistaken, we should = be getting preannouncements starting sometime in September, as well as = additional economic insight. If this data comes in poorly, the market = might start reacting to it negatively, and this could be our new short = term driving force. 5. There is still "headline risk" in the market. This would include = things like the service and equipment swaps that Q has done with a = variety of companies, including IBM and BLS (not widely known). GE has = seen order slowdowns. There are a host of bankruptcies yet to be = announced. F is in trouble. Housing looks vulnerable. Retail sales were = weak the week of Aug 10, BBY preannounced, etc, so the consumer is still = vulnerable. There are other problems as well. While I undertand that it = often looks darkest before the dawn, it also looks darkest before = midnight. 6. Europe looks terrible. Brazil is still a threat, depending on who = wins the presidential elections, and we could still lose South America. 7. There is annecdotal evidence questioning the strength of the rally. = Ex. pulp and paper inventories were up above typical seasonal increases, = Ingersal Rand saw no evidence of an economic comeback, etc. 8. Yield spreads are very wide. 9. Energy sector debt at risk ($500 B), 3G programs, which were = supposed to support telecom debt, have been weak. 10. First Call forward earnings growth has been coming down too = quickly. There are, of course, others. I would be willing to overlook many of = these negatives IF the rally looked better. To me, it looks too much = like the type of bounce we saw in September, but with a shorter = duration. Any thoughts? Eric - -------------------------------------------------------------------------= - ----- Do You Yahoo!? HotJobs, a Yahoo! service - Search Thousands of New Jobs - ------=_NextPart_000_00C5_01C2452D.75453570 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable
Hi Eric,
 
Thoughts? Thoughts? How about "oh my goodness, what an *incredible* = analysis!" Each and every point seems to have point/counterpoint written = all=20 over it --I'm looking forward to reading some great posts as a result of = your=20 efforts.
 
One particular question came to mind when reading your notes. That = is, in=20 any situation where there are pros/cons, must we resolve each and every = one of=20 them in order to resolve a course of action? If I were faced with two = choices,=20 each with a set of pros/cons, how would I chose between them? In this = case,=20 given the strength of arguments that you gave in both directions, my = question to=20 you would simply be, "what action will you take given what you have = observed and=20 what contingency plans would you put into place upon execution?" At some = level,=20 it seems that when given the preponderance of evidence on the = markets as a=20 whole that our choice as investors is more importantly, "am I willing to = bet the=20 farm one direction or the other, do I want to stand aside until the = evidence is=20 more squarely positioned in one camp vs another, or will I step in = gingerly in=20 one direction or the other while adding to that position as the evidence = mounts?"
 
Katherine
----- Original Message -----
From:=20 Eric=20 Jaenike
Sent: Friday, August 16, 2002 = 1:39=20 PM
Subject: [CANSLIM] Recent = activity

Hi all-

Just wanted to throw out a few thoughts and get some feedback.

I am not terribly sanguine about the market right now, for a number = of=20 reasons. Before I go into why, I will review the things I see as = bullish. If=20 anyone has additional bull thoughts, please let me know.

Bull:

1.Heavy volume low mid-June, can be sign of climax bottom with = sellers=20 clearing out.

2. Lots of secondary indicators flash extremes generally associated = with=20 bottoms, including put/call, % bullish/bearish, nasdaq vs. NYSE = trading=20 volume, etc.

3. Rally confirms on indices.

4. Generally, up volume advances, down volume pullbacks.

5. Some breakouts occurring. These include (without regard to = whether they=20 have succeeded or not) CTSH FCN IMN XRAY DORL WTW PIXR CSTR ISLE BYD = APOL.

6. Some potential leadership forming, including gaming (BYD ISLE), = medical=20 (LNCR AMSG HSIC), education (APOL CECO COCO), HMOs (CVH SIE MME), = regional=20 banks (if you're willing to include that group as leadership), retail = (JASA=20 PETM MIK KSS).

7. Skepticism about rally.

8. Certain secondary factors, such as the addressing of corporate=20 governance issues, potentially improved accounting, recent = strengthening of=20 the dollar, etc

9. Increased insider buying.

10. Valuations have become compelling in certain = areas/companies.

The concerns I have are both fundamental and technical.

Technical:

1. Secular bears generally don't end with a bang, but with a = whimper ('29,=20 '74). Tendency toward climax bottom with reversal, followed by lower = volume=20 selloff into true bottom.

2. Secondary indicators are area code indicators. In a prolonged, = hard=20 bear, they can be early and flash signals repeatedly before = market  has=20 truly bottomed. Unreliable.

3. Rally confirm came very late on Dow and S&P, came on low = volume on=20 Nasdaq and S&P 600 following large givebacks/distribution. Both = late=20 confirms and excessive givebacks are signs of weakness, not = strength.

4. While volume on up days has been up and on down days, down, = volume has=20 generally been very light. I prefer to see strong volume confirming, = not just=20 up volume. This might be seasonal, but it seems very suspicious.

5. There have been a number of up days spurred by positive news = (ex. Thurs=20 8/8 Brazil loan approval announcement, CSCO call, etc.) News driven = rallies=20 are suspect and failure prone.

6. A number of up days have been caused by buy programs, which = create=20 artifically positive looking days. Wed. was a great example. There has = also=20 been support from institutional, charter based reallocations from = bonds (think=20 40 yr low on Treasury yield) to stocks. This is not discretionary, = informed=20 buying.

7. There appears to be short covering activity. Not sustainable in = longer=20 term.

8. Oils are rallying. Generally not a good sign for market.

9. While there have been breakouts, they have not been particularly = numerous, nor have they been that powerful. I reviewed my breakout = list from=20 last September. I counted 16 reasonably solid breakouts from the low = through=20 10/15 (CACI AZO SANG RMCI AHMH APOL CPRT AMSG NDN MYL BVF CRL FRED MIK = USPH=20 ADVP). I count only 11 in the roughly same time period now (CTSH SIE = IMH XRAY=20 DORL  WTW PIXR CSTR ISLE BYD APOL. Not counting banks, and I = might have=20 missed some). It appears that there are fewer, or at least not more, = breakouts=20 over the recent period. In reviewing the lists, it also appears to me = that=20 there was generally tighter, more consistent, and more=20 prominent leadership back then. That rally, of course, failed = rather=20 quickly. I actually consider the late '01 rally to have been more of = an=20 oversold bounce than a true rally.

10. Expanding on #9, I am not enamored of the power of the = breakouts. Ex.=20 WTW nasty bearish reversal tuesday, declining volume on rally = resumption=20 since. This is not the type of action I want to see.

11. There has been too much strength in tech in the past couple of = days=20 relative to the general market, especially Wed. I do not believe there = is=20 much, if any, chance that tech will provide sustained leadership here, = and=20 especially not large cap tech. See below for more.

12. Lots of broken charts, whippy runups.

Fundamentals:

1. Recent weakening in consumer spending and sentiment. Generally=20 lackluster employment.

2. Market never got "cheap". Some have argued that on a P/E basis = the=20 market got to acceptable trough valuations. Without going into detail, = I have=20 found those arguments generally lacking.

3. Tech fundamentals are bad, and appear to be getting worse. Look = at all=20 the recent calls in the semiconductor space (AMAT TSCM KLIC, etc). = Revenue and=20 earnings guidedowns, capacity utilization dropping, etc. I think I = posted a=20 piece on this previously. That means the market will have to rally = through bad=20 tech news in the upcoming earnings period, with tech stocks going from = very=20 expensive to even more expensive. I do not consider the Dell or CSCO = calls=20 positive for the industry in general. They are share takers, and are=20 benefitting at the expense of the rest of their respective industries. = Recall,=20 as Dell noted in its conference call, total PC sales in the second = quarter=20 DROPPED 10%. Note the relatively poor action in the SOX.

4. We have shifted short term influences in the market. 5 weeks = ago,=20 corporate governance/bad macroeconomic numbers were the short term = driving=20 force, pushing the market to its lows. We digested that information as = we hit=20 the lows on volume. At that point, the market was poised to spring = back,=20 either sustainably or unsustainably. We shifted to a new short term = driving=20 factor: the oversold condition of the market (note how all negative = news is=20 being ignored- ex. AMAT horrible call. That is, IMO, because news is = not the=20 current short term driving factor; the technical condition of the = market is).=20 This short term factor is being augmented by asset allocation and = short=20 covering. However, this short term factor will eventually dissipate, = and we=20 will get a new driving force. Given how poor, IMO, the quality of this = rally=20 has been, I think the market will be primed to latch onto something = negative.=20 We are currently in a bit of a news vacuum. If I'm not mistaken, we = should be=20 getting preannouncements starting sometime in September, as well as = additional=20 economic insight. If this data comes in poorly, the market might start = reacting to it negatively, and this could be our new short term = driving=20 force.

5. There is still "headline risk" in the market. This would include = things=20 like the service and equipment swaps that Q has done with a variety of = companies, including IBM and BLS (not widely known). GE has seen = order=20 slowdowns. There are a host of bankruptcies yet to be announced. F is = in=20 trouble. Housing looks vulnerable. Retail sales were weak the week of = Aug 10,=20 BBY preannounced, etc, so the consumer is still vulnerable. There are = other=20 problems as well. While I undertand that it often looks darkest before = the=20 dawn, it also looks darkest before midnight.

6. Europe looks terrible. Brazil is still a threat, depending on = who wins=20 the presidential elections, and we could still lose South America.

7. There is annecdotal evidence questioning the strength of the = rally. Ex.=20 pulp and paper inventories were up above typical seasonal increases, = Ingersal=20 Rand saw no evidence of an economic comeback, etc.

8. Yield spreads are very wide.

9. Energy sector debt at risk ($500 B), 3G programs, which were = supposed to=20 support telecom debt, have been weak.

10. First Call forward earnings growth has been coming down too=20 quickly.

There are, of course, others. I would be willing to overlook many = of these=20 negatives IF the rally looked better. To me, it looks too much like = the type=20 of bounce we saw in September, but with a shorter duration.

Any thoughts?

Eric

 


Do You Yahoo!?
= HotJobs,=20 a Yahoo! service - Search Thousands of New = Jobs - ------=_NextPart_000_00C5_01C2452D.75453570-- - - - -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 #2814 ****************************** 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.