AW: [CANSLIM] Analysis on Industry Groups and their technical patterns

From: Andreas Himmelreich <judgejimmy@web.de>
Subject: AW: [CANSLIM] Analysis on Industry Groups and their technical patterns
Date: Tue, 11 Dec 2001 23:51:25 +0100
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Hi Katherine,

Thank you.

As we all I try to look for theories that really give an edge.
And this is the reason why I want look into your following statement deeper 
(in the next days and weeks) -->

"The good stocks will start moving out ahead of the
> pack. Once you get a couple of participants, that may be enough evidence 
to
> show strong movement, rather than waiting for a C&H B/O of the industry
> itself. "

Something tells me, that this is not always like this (at least this would 
be wonderfull). Especially when it comes to (small cap) CANSLIM stocks.
I just found to many examples (which I will hack into an excel spreadsheet 
in order to see if this is right or not) where this was not the case.
The uptrend might get supported by stocks in the group that do not meet 
rigid canslim selection.


Here some stuff from Market Wizard Gill Blake that might be interesting in 
this context -->

"In researching the price behavior of individual stocks, I have found that 
significant daily price changes (with relative strength) have about
a 55 percent change of being followed by a similar directional move on the 
following day. After allowing for commissions and bid/ask spreads, that is 
not a sufficient probability edge to be tradabel.
Now as an analogy, assume you have a stack of coins, and each has a 55% 
chance of landing on heads. If you toss a single coin the odds of gettin 
heads are 55%.
If you toss nine coins, the odds of getting more heads then tails go upt to 
62%. And if you toss ninetynine coins, the odds of gettingmore heads than 
tails go up to about 75%. Its a function of the bionominal probability 
distribution."

So if a whole group moves, that might tell you something about the quality 
of the breakout.

See you

Andreas





> -----Ursprungliche Nachricht-----
> Von:	Katherine Malm [SMTP:kmalm@earthlink.net]
> Gesendet am:	Tuesday, December 11, 2001 9:40 PM
> An:	canslim@lists.xmission.com
> Betreff:	Re: [CANSLIM] Analysis on Industry Groups and their technical 
patterns
>
> Hi Andreas,
>
> Excellent analysis!!!!!
>
> What you describe is extremely close to my own approach. Now that DGO is
> *finally* offering industry graphs, this will be far easier to do. I've 
been
> using another product to do this for the last 4 years, so the specifics 
of
> my approach are slightly different as a result.
>
> One thing I might add to your general analysis. When watching industries,
> you are really looking at a couple of things. First, is it extended 
and/or
> getting ready to top out? Looking at the industry's chart and RS relative 
to
> the market as a whole will help, but watching the individual players and
> making note of the weaker players breaking down will give an additional
> clue. On the other side of the coin, once the industry has gone through a
> corrective phase (in your parlance, the industry chart would show basing 
and
> then beginning a move out of a bottoming formation), you want to start
> watching for leadership. The good stocks will start moving out ahead of 
the
> pack. Once you get a couple of participants, that may be enough evidence 
to
> show strong movement, rather than waiting for a C&H B/O of the industry
> itself. I absolutely agree with you than any candidate for buying should
> come from a rising group. Analyzing ALL players in the group of
> institutional quality should be part of every buy and sell decision.
>
> Katherine
>
>
> ----- Original Message -----
> From: "Andreas Himmelreich" <judgejimmy@web.de>
> To: <canslim@lists.xmission.com>
> Sent: Tuesday, December 11, 2001 3:23 PM
> Subject: [CANSLIM] Analysis on Industry Groups and their technical 
patterns
>
>
> > Hi,
> >
> > I know that I read it somewhere in WO Books that the Market drives
> > individual stocks by 75% and the Industry Groups do drive individual
> stocks
> > as well 75%.
> > That means, if the market is down (bear market), 3 out of 4 Stocks are
> > usually down.
> > And if the Industry is down, 3 out of 4 Stocks belonging to that 
industry
> > are also down. Also WO states that he looks stocks in a group that are
> > breaking out to before he buys a stock within this group.
> >
> > On Daily Graphs http://beta.dailygraphs.com you can chart industry 
groups
> > and I think this is great -->
> >
> > Here is my working theorie, that I want to share with you:
> >
> > M (Market) --> Wait for follow through (nothing new)
> >
> > I (Industry) --> Look for uptrend of the Industry (Price and Relative
> > Strength (RS))
> > --> Look for Patterns within the RS of the Industry Group (IG)
> > --> Look for Patterns within the Price of the IG
> > --> Look for Patterns where the Price of a Group is not changeging a 
lot
> > (in the handle) but the RS improves and breaks out of a CWH (or other)
> > pattern or makes new highs. I found this situation several times and
> > within the next days the leading stocks of the IG started to break out
> > upwards.
> > --> Look for Breakouts of Price of the IG
> > --> Be carefull if the IG has already a RS of 99 and looks overextended
> > (why not use the rubberband sell rule)
> >
> > Stock Selection (Oneil, Boucher)
> >
> > --> We all know that (RS 80, EPS 80, ROI better then 17%, Low Dept 
etc.,
> > CWH etc.) Look for the strongest stocks in the group.
> > If you missed a BO of a stock, look for the next stocks within the 
group
> > that did not break out yet
> > but has good fundamentals and a good pattern.
> >
> > Sceptical? Me too. But I found very good examples:
> >
> > Example 1) IG Bld-Resident/Commrcl -->
> >
> > Nice SWH (Soucer With Handle) of RS of the IG --> 09/05 - 11/30
> > Nice CWH of the Price of the IG --> 09/05 - 11/30
> >
> > My working theorie is --> You could have been very well prepared for 
the
> > breakout on --> 11/29, because the RS of the IG was spiking up the day
> > before the breakout of the individual stocks.
> >
> > Further more --> NRV, MTH,  MHO, MDL, DHI, BZH broke on 11/30 (the 
Break
> > out of Price of the Industry Group and the Breakout of RS of the IG)
> > You could have grabbed RYL and CTX on 12/04 and WLS, KBH, HOV on 12/05.
> >
> > Further Conclusions -->
> >
> > - The more individuall stocks of a group break out on one day the less 
the
> > probability that the breakout fails
> > - The better the fundamentals of a stock (especially Valuation and EPS,
> but
> > also RS) relative to the others in their group the less the probability
> > that the breakout fails (of the individual stock you choosed).
> >
> > Example 2) Retail Consumer Electronic
> >
> > Nice CWH of the Price of the Group from 09/06 - 11/13
> > RS is spiking up in the Handle even the price of the group is not 
moving
> > up.
> > 11/13 was the breakout of the Group
> >
> > ON 11/15 (!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!) RSC broke 
out.
> >
> > Next Break out of the group was 11/26. On 11/29 ELBO broke out 
(!!!!!!!!
> > !!!!!!!!!!!!!!!)
> >
> >
> > Example 3) Telecommunications Equipment
> >
> > Kind of a SWH. Handle starts on 10/11. Price Breakout of the Group 
11/13
> > and 12/05
> >
> > Breakout of UTSI --> Breakout on 12/04 (on the next Day the Group broke
> out
> > again)
> > Breakout of ECTX --> (better fundamentals then UTSI) 11/26 and 12/04 
and
> > 12/05
> >
> >
> > Example 4) False Breakout of ADVP
> >
> > Broke out on 10/15.
> >
> > Industry Group somehow broke out at the same day or the next day. BUT 
RS
> of
> > the Industry Group was literaly flat and made now new high.
> >
> > I know I am very excited and above examples are just luck and the odds 
are
> > not like I describe them here. That is the reason why I writhe it to 
you
> so
> > if some
> > of you want, you can look at this deeper and try to confirm or kill it.
> >
> > Thank you.
> >
> > Andreas
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
> >
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