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

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] Analysis on Industry Groups and their technical patterns
Date: Tue, 11 Dec 2001 16:14:54 -0600
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Hi Andreas,

Thanks for pointing this out.

>>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.

I realized after reading your comments that there was an underlying
assumption in my statement which I use, but did not state. That is, when I'm
looking at the industry brethren to show strength or weakness, I'm only
looking at stocks that meet bare minimum CANSLIM characteristics! This is
something I've learned to do when evaluating group movement and just take
for granted. It ties into earlier list discussions about finding out who the
real competitors are, as well. Sometimes, what seems to be a lone wolf
moving in a group is not so alone afterall. On analysis, it often happens
that this stock is unfortunately stuck into a non-representative grouping.
Once that is revealed, it makes group movement easier to ascertain. The
software that I use (VectorVest) allows me to create "groups" of anything I
chose, so this is a feature I often use. I believe that others on the list
commented that HGS has this feature as well. There are times where I will
look at *all* the group members, but most of the time they are filled with
penny stocks or microcap stocks that I ignore. I know, for example, that a
style preference would have one person vs the other fishing in a different
sea, but I stay in a quadrant of the sea that lets me use my strengths.
That's why someone like Tom and I would rarely hold the same stocks. That
does not make his approach any more or less successful, he just likes
fishing in backwater, I like Carmel Bay. As long as we catch big fish, we
both get to have dinner.

It is my experience, however, that as long as we're not talking about mass
momentus hystericus, the stocks moving first are generally the strongest.
The differential between numbers 1, 2, 3, 4 may be small enough in some
cases that you can wait for the 3rd or 4th mover and still make a boatload
of money. I often practice "let this one go by." One really good looking
swimmer can be followed shortly by several more equally good looking
swimmers. But, if I've done my homework and have targeted a stock with a
really good "2 minute elevator ride speech," I'll take it when it breaks
out, even if it is the first in the group. If the group hasn't confirmed the
move and the market is iffy, this will only be a partial position. The bad
news is, I have to wait for a pullback to put on the rest of my position.
The good news is, if the group or the market isn't ready, I've risked far
less than 1/2% of my capital. The better news is, these are usually my
biggest winners.

As a follow-up to the Market Wizard comment. I am constantly working at
stacking the odds in my favor. If I chose, for example, to take an early
entry based on technical pattern or on an as yet unconfirmed group movement,
I am looking for the next area of technical support. If movement down to
that support would be greater than 7-10%, I don't bite. This limits my
downside risk, but allows me to enter a position without being whipsawed in
a pullback to support. (BTW, this part of risk control is something new for
me since early 2000, as technical analysis is not my strongest tool!)

Katherine


- ----- Original Message -----
From: "Andreas Himmelreich" <judgejimmy@web.de>
To: <canslim@lists.xmission.com>
Sent: Tuesday, December 11, 2001 4:51 PM
Subject: AW: [CANSLIM] Analysis on Industry Groups and their technical
patterns


> 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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