Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] Industry group movements.
Date: Sun, 17 Feb 2002 08:48:50 -0600
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This is a multi-part message in MIME format. - ------=_NextPart_000_0030_01C1B78F.EB7F9D60 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Hi Gary, In my mind there are a few things that are most important when looking = at industry groups: (1) The strong stocks in the group move first and break down last. = That's one of the reasons WON always says to identify the strongest = stock in the group and stay away from the laggards. (2) Sometimes the group that the stock is in does not necessarily "fit" = and the competitors for the stock showing strength will actually be = spread around in other groups. During due diligence, determining the = *real* competitors is thus a key step. [I call stocks that show strength = independent of the industry group strength as "distracting fish." = There's something going on, but until you pay attention to the fish, you = don't know why it's jumping around, seemingly all alone. Once you figure = out that the business actually competes against similar fish that are = swimming in other schools, it makes more sense.] (3) It is more important to find strong stocks in *rising* industries = instead of *top* industries. When the market is choppy and full of = rotation, it allows you to spot strength early, find the strongest = players, and ride them while the group is strong. When the market is in = strong bull mode, the groups that you rode to the top will *stay* at the = top for a long time instead of breaking down and you are more likely to = have a "big winner" on your hand because you caught it early in the = stock's *and* the industry's move. (4) Once in a position that you find via strong stock and/or strong = industry movement, the end of day review on the stock for sell rules = should include not only the stock but also the stocks in the same group. = If you are in the strongest stock, you have a bit of time while the = laggards that went along for the group ride roll over before your strong = stock takes the dive. This is also very useful when buying a stock = coming out of a base. If the stock has consolidated and looks like it is = going to breakout (an sometimes *does*), but the rest of the group has = topped out and broken down....you know that the odds of the breakout = succeeding will be slim. I think this issue of *rising* industry strength rather than *top* = industry strength is a key point that WON makes, but gets lost in the = noise. I have always felt that the articles in the IBD mislead the = CANSLIM investor and encourage them to simply look in the top few groups = when filtering for stock candidates. Just in the last couple of weeks, = however, I noticed that one of the Investor's Corners did actually = acknowledge that "rapidly rising" groups were also a place one should be = looking. Again, a subtle point, but easily lost in the article if the = reader had been led to believe that *top* industries were the place to = be. Another issue that I have with IBD is that the industry rankings are = based on 6 months with the 3 most recent months more heavily weighted. = That's all well and good when the market is in a strong uptrend lasting = for many years, but the ratings are laggard when the market is choppy, = is in the midst of contra bear rallies, or is in a long sideways mode. = In this case, the industries rotate more quickly and if one wants to = ride them, they need tools to identify rising industries more quickly = than the IBD rankings. I actually discovered this by accident many years = ago when I became frustrated with trying to track industry movement by = highlighting and placing little arrows in the paper's industry chart. I = couldn't get a "picture" of the movement. Also, until recently, in order = to identify the stocks in an industry, you had to look in the = industry/ticker book sold by the IBD and updated a few times a year. = What a pain. I started using software (VectorVest) in early '98 which = allowed me to drill down on an industry, track industry movement and = build my own time-sensitive indicators and/or competitor "groups" if I = preferred. Other software is now available to do similar things (such as = HGS and QP2) but I am less familiar with them. The new beta version of = DGO has an industry component, but I believe the tools, while better = than what's been there, are still not as powerful as other software = tools out there. One of the powerful components of CANSLIM is its insistence on technical = indicators to tell you what's "really going on" with a stock. I believe = the same is true of industry movement. If the investor has a technique = that looks for industry *and* stock movement based on technical = indicators, they lead your attention to particular stocks. Once your = attention is on them, it is often easier to understand *why* the = group/stock is moving. For example, if technical analysis shows that = homebuilders are suddenly becoming hot in early 2000, during due = diligence the investor would be able to deduce that the movement is lead = not only by a group showing strong fundamentals, but one that is likely = to benefit from the Fed's easing mode. Another way of approaching this = would be to have a constantly refreshed list of "macrothemes" at the = ready. Once the industry/stock analysis begins to show technical = strength, it is easy to quickly spot the "why" of the movement because = it is fulfilling a macrotheme. On the sell side, technical breaks rule = the roost for the same reason. If a stock is technically breaking down, = the fundamental and macrotheme reasons for the slide do not become = apparent until later because the "why's" are often explained in lagging = fundamental/financial reporting. Katherine ----- Original Message -----=20 From: Gary A. Snyder=20 To: canslim@lists.xmission.com=20 Sent: Sunday, February 17, 2002 7:29 AM Subject: [CANSLIM] Industry group movements. I am fascinated by industry group movement but can't figure out what = move=20 groups up and down. For example: EPIQ is for sure a fine investment = and I=20 have owned it but the last big move it made from about 13 to 25 the = industry=20 group moved from at least the lower B group to 30-32. If the industry = group=20 had not moved EPIQ would still be building a base. In the same group = BARZ=20 went from 35 to 55, ADVS 29 to 51, FIC 39 to 63, BSYS 44 to 63. Even = thought=20 these companies offer completely different software to the financial=20 industry. A few months ago IBD used GNSS, a semi manufacture, as an = example=20 of a successful cup and handle but failed the mention that the = industry=20 group started up from a e rating and worked its way up to at least the = mid b=20 rating, against WON rule look in the top sixty groups. Not just GNSS, = all=20 the semi manufacturing stocks were going up even if they were over = bought by=20 as much as 50%. You may think that you are picking good companies and = you=20 are but they are not going anywhere until the industrial group is = going up.=20 So what moves these industry groups? Some are easy to figure: defense=20 stocks- government spending to increase dramatically per purposed = budget.=20 Safety and security- the terrorist effect. Any computer group a month = ago- I=20 don't have a clue. You don't want to know how poorly some of these = security=20 companies were rated when they started moving up and they are not=20 fundamentally good companies but that doesn't matter if the market = perceives=20 future growth. Some of these security companies have very poor = fundamentals=20 but that does not stop them from going through the roof if the = industry=20 group is on the rise. The rating on some of these companies look great = now(after the fact). Lower oil prices helped the success of=20 transportation/trucking even in a bad economy but if the price of oil = goes=20 up for any of a number of reasons, number one being Iraq targeted as = the=20 next enemy on the war on terrorism transportation/trucking will go = down so=20 fast only bested by oil&gas/any company with proved oil reserves going = up.=20 You don't have to pick the best company in the group. Throw a dart at = any=20 company on the list for success. Home builders: low interest rates,=20 increased new home sales, increased building permits but let the = interest=20 rates go up a little and home builders start correcting along with = home=20 mortgage businesses and banks living on refinancing income. In fact = let an=20 influential analysis say interest rates have bottomed and all these = groups=20 start down no proof needed.Good companies along with bad. I'm confused = and=20 bloodied but feel one key is tracking industry groups. I ask for = comment=20 and/or instruction. gas175k _________________________________________________________________ MSN Photos is the easiest way to share and print your photos:=20 http://photos.msn.com/support/worldwide.aspx - -To subscribe/unsubscribe, email "majordomo@xmission.com" -In the email body, write "subscribe canslim" or -"unsubscribe canslim". Do not use quotes in your email. - ------=_NextPart_000_0030_01C1B78F.EB7F9D60 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable <!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=3DContent-Type content=3D"text/html; = charset=3Diso-8859-1"> <META content=3D"MSHTML 5.50.4807.2300" name=3DGENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=3D#ffffff> <DIV>Hi Gary,</DIV> <DIV> </DIV> <DIV>In my mind there are a few things that are most important = when=20 looking at industry groups:</DIV> <DIV> </DIV> <DIV>(1) The strong stocks in the group move first and break down last. = That's=20 one of the reasons WON always says to identify the strongest stock in = the group=20 and stay away from the laggards.</DIV> <DIV>(2) Sometimes the group that the stock is in does not necessarily = "fit" and=20 the competitors for the stock showing strength will actually be spread = around in=20 other groups. During due diligence, determining the *real* competitors = is thus a=20 key step. [I call stocks that show strength independent of the industry = group=20 strength as "distracting fish." There's something going on, but until = you pay=20 attention to the fish, you don't know why it's jumping around, seemingly = all=20 alone. Once you figure out that the business actually competes against = similar=20 fish that are swimming in other schools, it makes more sense.]</DIV> <DIV>(3) It is more important to find strong stocks in *rising* = industries=20 instead of *top* industries. When the market is choppy and full of = rotation, it=20 allows you to spot strength early, find the strongest players, and ride = them=20 while the group is strong. When the market is in strong bull mode, the = groups=20 that you rode to the top will *stay* at the top for a long time instead = of=20 breaking down and you are more likely to have a "big winner" on your = hand=20 because you caught it early in the stock's *and* the industry's = move.</DIV> <DIV>(4) Once in a position that you find via strong stock and/or strong = industry movement, the end of day review on the stock for sell rules = should=20 include not only the stock but also the stocks in the same group. If you = are in=20 the strongest stock, you have a bit of time while the laggards that went = along=20 for the group ride roll over before your strong stock takes the dive. = This is=20 also very useful when buying a stock coming out of a base. If the = stock has=20 consolidated and looks like it is going to breakout (an sometimes = *does*), but=20 the rest of the group has topped out and broken down....you know that = the odds=20 of the breakout succeeding will be slim.</DIV> <DIV> </DIV> <DIV>I think this issue of *rising* industry strength rather than *top* = industry=20 strength is a key point that WON makes, but gets lost in the noise. I = have=20 always felt that the articles in the IBD mislead the CANSLIM investor = and=20 encourage them to simply look in the top few groups when filtering for = stock=20 candidates. Just in the last couple of weeks, however, I noticed that = one of the=20 Investor's Corners did actually acknowledge that "rapidly rising" = groups=20 were also a place one should be looking. Again, a subtle point, but = easily lost=20 in the article if the reader had been led to believe that *top* = industries were=20 the place to be.</DIV> <DIV> </DIV> <DIV>Another issue that I have with IBD is that the industry rankings = are based=20 on 6 months with the 3 most recent months more heavily weighted. That's = all well=20 and good when the market is in a strong uptrend lasting for many years, = but the=20 ratings are laggard when the market is choppy, is in the midst of contra = bear=20 rallies, or is in a long sideways mode. In this case, the industries = rotate more=20 quickly and if one wants to ride them, they need tools to identify = rising=20 industries more quickly than the IBD rankings. I actually discovered = this by=20 accident many years ago when I became frustrated with trying to track = industry=20 movement by highlighting and placing little arrows in the paper's = industry=20 chart. I couldn't get a "picture" of the movement. Also, until recently, = in=20 order to identify the stocks in an industry, you had to look in the=20 industry/ticker book sold by the IBD and updated a few times a year. = What a=20 pain. I started using software (VectorVest) in early '98 which allowed = me to=20 drill down on an industry, track industry movement and build my own=20 time-sensitive indicators and/or competitor "groups" if I preferred. = Other=20 software is now available to do similar things (such as HGS and QP2) but = I am=20 less familiar with them. The new beta version of DGO has an industry = component,=20 but I believe the tools, while better than what's been there, are still = not as=20 powerful as other software tools out there.</DIV> <DIV> </DIV> <DIV>One of the powerful components of CANSLIM is its insistence on = technical=20 indicators to tell you what's "really going on" with a stock. I believe = the same=20 is true of industry movement. If the investor has a technique that looks = for=20 industry *and* stock movement based on technical indicators, they lead = your=20 attention to particular stocks. Once your attention is on them, it is = often=20 easier to understand *why* the group/stock is moving. For example, if = technical=20 analysis shows that homebuilders are suddenly becoming hot in early = 2000, during=20 due diligence the investor would be able to deduce that the movement is = lead not=20 only by a group showing strong fundamentals, but one that is likely to = benefit=20 from the Fed's easing mode. Another way of approaching this would be to = have a=20 constantly refreshed list of "macrothemes" at the ready. Once the=20 industry/stock analysis begins to show technical strength, it is easy to = quickly=20 spot the "why" of the movement because it is fulfilling a macrotheme. On = the=20 sell side, technical breaks rule the roost for the same reason. If a = stock is=20 technically breaking down, the fundamental and macrotheme reasons for = the slide=20 do not become apparent until later because the "why's" are often = explained in=20 lagging fundamental/financial reporting.</DIV> <DIV> </DIV> <DIV>Katherine</DIV> <BLOCKQUOTE=20 style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; = BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px"> <DIV style=3D"FONT: 10pt arial">----- Original Message ----- </DIV> <DIV=20 style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: = black"><B>From:</B>=20 <A title=3Dgas175k@hotmail.com = href=3D"mailto:gas175k@hotmail.com">Gary A.=20 Snyder</A> </DIV> <DIV style=3D"FONT: 10pt arial"><B>To:</B> <A = title=3Dcanslim@lists.xmission.com=20 = href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>= </DIV> <DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Sunday, February 17, 2002 = 7:29=20 AM</DIV> <DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] Industry = group=20 movements.</DIV> <DIV><BR></DIV><BR><BR><BR><BR>I am fascinated by industry group = movement but=20 can't figure out what move <BR>groups up and down. For example: EPIQ = is for=20 sure a fine investment and I <BR>have owned it but the last big move = it made=20 from about 13 to 25 the industry <BR>group moved from at least the = lower B=20 group to 30-32. If the industry group <BR>had not moved EPIQ would = still be=20 building a base. In the same group BARZ <BR>went from 35 to 55, ADVS = 29 to 51,=20 FIC 39 to 63, BSYS 44 to 63. Even thought <BR>these companies offer = completely=20 different software to the financial <BR>industry. A few months ago IBD = used=20 GNSS, a semi manufacture, as an example <BR>of a successful cup and = handle but=20 failed the mention that the industry <BR>group started up from a e = rating and=20 worked its way up to at least the mid b <BR>rating, against WON rule = look in=20 the top sixty groups. Not just GNSS, all <BR>the semi = manufacturing=20 stocks were going up even if they were over bought by <BR>as much as = 50%. You=20 may think that you are picking good companies and you <BR>are but they = are not=20 going anywhere until the industrial group is going up. <BR>So what = moves these=20 industry groups? Some are easy to figure: defense <BR>stocks- = government=20 spending to increase dramatically per purposed budget. <BR>Safety and=20 security- the terrorist effect. Any computer group a month ago- I = <BR>don't=20 have a clue. You don't want to know how poorly some of these security=20 <BR>companies were rated when they started moving up and they are not=20 <BR>fundamentally good companies but that doesn't matter if the market = perceives <BR>future growth. Some of these security companies have = very poor=20 fundamentals <BR>but that does not stop them from going through the = roof if=20 the industry <BR>group is on the rise. The rating on some of these = companies=20 look great <BR>now(after the fact). Lower oil prices helped the = success of=20 <BR>transportation/trucking even in a bad economy but if the price of = oil goes=20 <BR>up for any of a number of reasons, number one being Iraq targeted = as the=20 <BR>next enemy on the war on terrorism transportation/trucking will go = down so=20 <BR>fast only bested by oil&gas/any company with proved oil = reserves going=20 up. <BR>You don't have to pick the best company in the group. Throw a = dart at=20 any <BR>company on the list for success. Home builders: low interest = rates,=20 <BR>increased new home sales, increased building permits but let the = interest=20 <BR>rates go up a little and home builders start correcting along with = home=20 <BR>mortgage businesses and banks living on refinancing income. In = fact let an=20 <BR>influential analysis say interest rates have bottomed and all = these groups=20 <BR>start down no proof needed.Good companies along with bad. I'm = confused and=20 <BR>bloodied but feel one key is tracking industry groups. I ask for = comment=20 <BR>and/or instruction.=20 = gas175k<BR><BR><BR><BR>__________________________________________________= _______________<BR>MSN=20 Photos is the easiest way to share and print your photos: <BR><A=20 = href=3D"http://photos.msn.com/support/worldwide.aspx">http://photos.msn.c= om/support/worldwide.aspx</A><BR><BR><BR>-<BR>-To=20 subscribe/unsubscribe, email "<A=20 = href=3D"mailto:majordomo@xmission.com">majordomo@xmission.com</A>"<BR>-In= the=20 email body, write "subscribe canslim" or<BR>-"unsubscribe = canslim". Do=20 not use quotes in your email.</BLOCKQUOTE></BODY></HTML> - ------=_NextPart_000_0030_01C1B78F.EB7F9D60-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email.
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