Re: [CANSLIM] why buy breakouts - article

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] why buy breakouts - article
Date: Mon, 22 Apr 2002 11:03:33 -0500
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Hi Erik,

I think the article has to be put into context. First, Gary B. Smith is =
a short term trader and he was responding to this comment. Second, the =
author who made the statement you quoted also offered an additional =
explanation. Third, WON suggests the individual investor use breakouts =
as an indication of institutional demand overcoming supply and is a =
confirmation of a move in an otherwise sound CANSLIM stock. Obviously, =
if you *are* the institutional money, it doesn't make a lot of sense to =
be buying breakouts as an entry strategy. Below is the  entire article:

- --Katherine

Bantering About the Virtues of Breakouts
By Gary B. Smith
Special to TheStreet.com

04/22/2002 08:16 AM EDT
URL: http://www.thestreet.com/p/rmoney/techforumrm/10018593.html



This past Friday, my colleague Dan Fitzpatrick wrote this in his column: =


  "For example, it's no longer profitable to buy breakouts; they should =
be sold. And yet it's tough to unlearn habits that have worked so well =
for so many years. I talk with professional money managers every day. I =
am amazed at how many continue to buy breakouts. Memo to money managers: =
That game is over."

Naturally, because I'm the poster child for the breakout movement, many =
readers asked me to comment, and I am happy to do so.=20

First, Dan emailed me shortly after the column went up with this =
clarification:=20

  "... the context of that comment related to professional money =
managers, and not nimble traders. The money managers (buy-and-hold =
types) I talk to like to buy breakouts, and then start building big =
positions in them. But after working with several of them, I see the =
same thing happening: Just as they've got their 'big position' built, =
the rally finds supply, and the rally peters out. (Of course, the retail =
and short-term traders have a good profit in the stock, and are closing =
out their positions just as the big guys are waiting for more). So, in =
this market, the small trader-types have a distinct advantage over the =
big money."

Of course, Dan is entirely correct, in essence implying that breakouts =
can still work for short-term traders, a class into which I definitely =
fall.=20

In addition, the success of any breakout, of course, totally depends on =
the exit strategy employed. With a 5% target and 2% stop, you might have =
success with breakouts, while a 20% target and 5% stop may yield abysmal =
losses.=20

Finally, I would argue that a small part of the success of breakouts is =
knowing which ones to pick and which to avoid. In my Chartman's Top =
Stocks newsletter, there are long and short picks published every night, =
and ironically, the longs have been working a lot better than the =
shorts. In fact, if Dan were entirely correct, obvious breakouts like =
Kraft (KFT:NYSE - news - commentary) , Newell Rubbermaid (NWL:NYSE - =
news - commentary) and Pier 1 (PIR:NYSE - news - commentary) would yield =
very little in profits, but instead they're some of my most successful =
picks.=20

Still, I can't argue with what Dan said. As a broad generality, he might =
be correct. On the other hand, my world is geared to traders with a =
methodology, and for those, breakouts can and have worked quite well.=20


- ----- Original Message -----=20
  From: Erik_Harris3745=20
  To: canslim@lists.xmission.com=20
  Sent: Monday, April 22, 2002 10:54 AM
  Subject: [CANSLIM] why buy breakouts - article




  Hi,
  Does anyone subscribe to The Street. I'm curious about the article =
below. I can't image what the reasoning is for the comment about not =
buying breakouts.

  Just Curious,
  Erik
  ______________________________________________________________________
  Monday April 22, 8:16 am Eastern Time
  Bantering About the Virtues of Breakouts

  By Gary B. Smith
  Special to TheStreet.com

  This past Friday, my colleague Dan Fitzpatrick wrote this in his =
column :

  "For example, it's no longer profitable to buy breakouts; they should =
be sold. And yet it's tough to unlearn habits that have worked so well =
for so many years. I talk with professional money managers every day. I =
am amazed at how many continue to buy breakouts. Memo to money managers: =
That game is over."
  =
________________________________________________________________________



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<DIV>Hi Erik,</DIV>
<DIV>&nbsp;</DIV>
<DIV>I think the article has to be put into context. First, Gary B. =
Smith is a=20
short term trader and he was responding to this comment. Second, the =
author who=20
made the statement you quoted also offered an additional explanation. =
Third, WON=20
suggests the individual investor use breakouts as an indication of =
institutional=20
demand overcoming supply and is a confirmation of a move in an otherwise =
sound=20
CANSLIM stock. Obviously, if you *are* the institutional money, it =
doesn't make=20
a lot of sense to be buying breakouts as an entry strategy.&nbsp;Below =
is the =20
entire article:</DIV>
<DIV>&nbsp;</DIV>
<DIV>--Katherine</DIV>
<DIV>&nbsp;</DIV>
<DIV><STRONG><FONT face=3DArial size=3D4>Bantering About the Virtues of=20
Breakouts<BR></FONT></STRONG><FONT color=3D#000000 =
size=3D3><STRONG><FONT=20
face=3DArial>By </FONT></STRONG><A=20
href=3D"mailto:gsmith@thestreet.com"><STRONG><FONT face=3DArial>Gary B.=20
Smith</FONT></STRONG></A><BR><STRONG><FONT face=3DArial>Special to=20
TheStreet.com</FONT></STRONG></FONT><BR><BR><FONT face=3D"arial, =
helvetica"=20
color=3D#000000 size=3D1>04/22/2002 08:16 AM EDT</FONT><BR><FONT=20
face=3D"arial, helvetica" color=3D#000000 size=3D2>URL: <A=20
href=3D"http://www.thestreet.com/p/rmoney/techforumrm/10018593.html">http=
://www.thestreet.com/p/rmoney/techforumrm/10018593.html</A></FONT><BR><BR=
>
<P></P>This past Friday, my colleague Dan Fitzpatrick wrote this in his =
column:=20
<P></P>
<BLOCKQUOTE>"For example, it's no longer profitable to buy breakouts; =
they=20
  should be sold. And yet it's tough to unlearn habits that have worked =
so well=20
  for so many years. I talk with professional money managers every day. =
I am=20
  amazed at how many continue to buy breakouts. Memo to money managers: =
That=20
  game is over."</BLOCKQUOTE>
<P></P>Naturally, because I'm the poster child for the breakout =
movement, many=20
readers asked me to comment, and I am happy to do so.=20
<P></P>First, Dan emailed me shortly after the column went up with this=20
clarification:=20
<P></P>
<BLOCKQUOTE>"... the context of that comment related to professional =
money=20
  managers, and not nimble traders. The money managers (buy-and-hold =
types) I=20
  talk to like to buy breakouts, and then start building big positions =
in them.=20
  But after working with several of them, I see the same thing =
happening: Just=20
  as they've got their 'big position' built, the rally finds supply, and =
the=20
  rally peters out. (Of course, the retail and short-term traders have a =
good=20
  profit in the stock, and are closing out their positions just as the =
big guys=20
  are waiting for more). So, in this market, the small trader-types have =
a=20
  distinct advantage over the big money."</BLOCKQUOTE>
<P></P>Of course, Dan is entirely correct, in essence implying that =
breakouts=20
can still work for short-term traders, a class into which I definitely =
fall.=20
<P></P>In addition, the success of any breakout, of course, totally =
depends on=20
the exit strategy employed. With a 5% target and 2% stop, you might have =
success=20
with breakouts, while a 20% target and 5% stop may yield abysmal losses. =

<P></P>Finally, I would argue that a small part of the success of =
breakouts is=20
knowing which ones to pick and which to avoid. In my Chartman's Top =
Stocks=20
newsletter, there are long and short picks published every night, and=20
ironically, the longs have been working a lot better than the shorts. In =
fact,=20
if Dan were entirely correct, obvious breakouts like <B>Kraft</B> =
(KFT:NYSE -=20
news - commentary) , <B>Newell Rubbermaid</B> (NWL:NYSE - news - =
commentary) and=20
<B>Pier 1</B> (PIR:NYSE - news - commentary) would yield very little in =
profits,=20
but instead they're some of my most successful picks.=20
<P></P>Still, I can't argue with what Dan said. As a broad generality, =
he might=20
be correct. On the other hand, my world is geared to traders with a =
methodology,=20
and for those, breakouts can and have worked quite well. </DIV>
<DIV>&nbsp;</DIV>
<DIV>&nbsp;</DIV>
<DIV>----- Original Message ----- </DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
  <DIV=20
  style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
  <A title=3Derik_harris3745@yahoo.com=20
  href=3D"mailto:erik_harris3745@yahoo.com">Erik_Harris3745</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> Monday, April 22, 2002 =
10:54=20
  AM</DIV>
  <DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] why buy =
breakouts -=20
  article</DIV>
  <DIV><BR></DIV><FONT face=3DArial color=3D#0000ff size=3D2></FONT><BR>
  <P><FONT size=3D2>Hi,<BR>Does anyone subscribe to The Street. I'm =
curious about=20
  the article below. I can't image what the reasoning is for the comment =
about=20
  not buying breakouts.<BR><BR>Just=20
  =
Curious,<BR>Erik<BR><EM>_________________________________________________=
_____________________<BR>Monday=20
  April 22, 8:16 am Eastern Time<BR>Bantering About the Virtues of=20
  Breakouts<BR><BR>By Gary B. Smith<BR>Special to =
TheStreet.com<BR><BR>This past=20
  Friday, my colleague Dan Fitzpatrick wrote this in his column =
:<BR><BR>"For=20
  example, it's no longer profitable to buy breakouts; they should be =
sold. And=20
  yet it's tough to unlearn habits that have worked so well for so many =
years. I=20
  talk with professional money managers every day. I am amazed at how =
many=20
  continue to buy breakouts. Memo to money managers: That game is=20
  =
over."<BR>_______________________________________________________________=
_________<BR></EM></FONT></P></BLOCKQUOTE></BODY></HTML>

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