Re: [CANSLIM] ATI

From: Dbphoenix@aol.com
Subject: Re: [CANSLIM] ATI
Date: Fri, 13 Jun 1997 13:44:13 -0400 (EDT)

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In a message dated 97-06-11 13:01:27 EDT, you write:

<< But isn't the formation of the handle itself indicative of those people
 taking
 profits plus the overhead breaking even? Otherwise if there is not much
 overhead 
 in the cup the stock will go up and not form a handle.
 Would be interesting to know the relationship between length of the
 handle, volume
 in the handle, and the overhead supply. >>

I'm sorry, Hemant.  I didn't see your second question.  Guess I was tired.

The answer to your question is more or less yes.  When a stock "pauses", it
generally indicates that supply and demand are in balance.  This can last
anywhere from a few minutes to a few months.  The stock then moves up or down
depending on how much supply is available and what the demand for it is.  If
a stock is approaching resistance, some people may throw substantial supply
on the market.  If the demand is sufficient to swallow it, the stock will
pretty much stall there.  If the demand is strong enough to not only absorb
the new supply but draw more from those who are holding the shares, the price
will rise until that demand is satisfied.  Unfortunately, this can often be
satisfied rather quickly.

What makes all this so damnably difficult to grab hold of is that you have
many different kinds of investors--professional money managers, amateur
investors, daytraders, etc.--all buying and selling for their own reasons
according to a seemingly infinite variety of strategies.  Or no strategy at
all.  Sometimes when a stock reaches a certain point after an uptrend
following a sell-off, a bunch of people will decide for whatever reasons to
get out.  In this case, you don't even get a handle.  You get a plain ol'
garden-variety sell-off.  Depending on what people are willing to accept for
their shares, the sell-off may be pretty severe, but, generally, if these
people waited this long to get out, they won't be willing to let their shares
go for much less than the price  at the point at which the stock pulled its
Uey.  They'll just hold on to them and hope for another resurgence.  At which
point they'll try again.

The volume in a handle ought to be low.  High volume in a handle, which, by
definition, means no upside or downside progress, indicates a raging battle
between the bulls and bears in this stock.  As such, it can go either way,
sometimes violently so.  If the volume is low, you are more likely looking at
quiet accumulation or distribution.  Whether it's one or the other is not
always easy to tell.  At this point it helps to look at the intraday
movement, i.e., is the close closer to the low or to the high, even though it
may not be higher than the previous day's high?  

Often you can't really tell until the stock begins to wake up.  At that
point, when demand reenters the equation, it's fairly easy to tell which way
the price is going to go.  It also helps if there's a shakeout somewhere
along the way.  If a lot of supply is thrown onto the market within the
handle, particularly if the handle has some length, one can assume it's a
shakeout, though one can't be sure until the next day.  In other words, it's
unlikely that somebody would suddenly decide after a couple of weeks that
they don't want all these market-moving shares anymore and decide to get rid
of them all at once.  If they have that many, they're probably not stupid
enough to think demand will absorb them.  If there's no continuation of the
downdraft the following day or so, it's probable that this was in fact a
shakeout, in which case you can look forward to a resurgence at any time.

- ------Db

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