Re: [CANSLIM] How are you choosing your stocks?

From: Dimitri Katsaros <dcka@yahoo.com>
Subject: Re: [CANSLIM] How are you choosing your stocks?
Date: Thu, 25 Apr 2002 22:02:37 -0700 (PDT)
Next Article (by Author): Re: [CANSLIM] How are you choosing your stocks? Dimitri Katsaros
Previous Article (by Author): Re: [CANSLIM] Reversal Bars Chazmoore@aol.com
Next in Thread: Re: [CANSLIM] How are you choosing your stocks? "Katherine Malm"
Articles sorted by: [Date] [Author] [Subject]
Katherine,

This seems quite contradictory... if one cannot sort
according to the recommended minimums, then what is
the point of stating them and... what is the value of
the Daily Graphs Custom Screen Wizard?

Just learning as I go
Dimitri Katsaros

- --- Katherine Malm <kmalm@earthlink.net> wrote:
> Dimitri,
> 
> Here is something I recently put together on my
> interpretation of RS, group RS and EPS rankings.
> 
> Interpretation of RS in CANSLIM
> 
>  
> 
> CANSLIM focuses on strength, but it's *relative*
> strength and in most cases *increasing* strength
> that is most important. Also, technical strength
> will outweigh historical fundamental rankings in
> almost all cases, meaning that RS and A/D carry more
> importance than EPS or SMR (that's my personal
> assessment). With respect to industries, again, the
> idea is subtle, but *rising* strength is key and in
> my mind will outweigh the absolute group strength
> ranking.
> 
> 
> 
> On RS---from HTMMIS:
> 
> p. 35-- "If the stock's relative price strength, on
> a scale from 1 to 99, is below 70, it's lagging the
> better performing stocks in the overall market."
> 
> p. 175-- "You buy stocks that are performing
> relatively stronger than the general market just as
> they are beginning to emerge from a sound
> base-building period."
> 
> HTMMIS: confine most of your buying to RS>=80...
> 
> IBD's 20 Rules to Investment Success: buy when
> RS>=85
> 
> 
> 
> My interpretation: Stocks with RS>=70 are *not*
> laggards. If RS is rising and >=70, then it is
> increasing in strength and *beginning* to
> outperform. Most of what you buy will likely have a
> high RS when you buy it. But good stocks will often
> break out when RS is a bit lower. The absolute
> number is not as important as the *direction* of the
> RS and the location of the RS *relative* to the
> stock's RS earlier in its base. Also, if you
> immediately filter out all stocks with RS<80 or 85,
> you will not be watching them early enough to
> perform due diligence and stalk the trade. My
> approach focuses on stocks as they begin to
> outperform so that you can catch them early enough
> to perform due diligence and then wait for them to
> set up technically. 
> 
>  
> 
> 
> 
> Overall conclusions: 
> 
> --Minimum acceptable RS if you are to consider a
> stock as a potential buy candidate: >=60 and
> *rising*
> 
> --Minimum acceptable RS at the time of the buy >=70
> (otherwise it's considered a laggard and violates
> the "L" in CANSLIM)
> 
> --When looking at a stock's chart, look at the RS
> while the base is forming. If the RS is not making
> new highs relative to where it was earlier in the
> chart, trouble is brewing because the stock is
> beginning to lag the market, even though price is
> rising.
> 
> --A high RS ranking is sometimes misleading if
> considered in isolation. A stock can have a high RS
> if it is going down less than the overall market,
> but the stock itself may be weak. A stock that has
> already broken out and is making its ascent will
> have a high RS. While that is a healthy sign, it is
> not necessarily useful in finding new stocks that
> are currently basing and therefore setting up to
> break out.
> 
> --All other things being equal, the stock with the
> higher RS would be ranked higher if you were trying
> to choose between 2 candidates. In other words, once
> a minimum acceptable RS is met and the pattern of RS
> is acceptable, the absolute value of the RS is more
> useful as a *sorting* tool than a *filtering/mining*
> tool.
> 
>  
> 
> ========
> 
> 
> 
> I pulled some articles that help identify
> "exceptions to absolute value of rankings"
> 
>  
> 
> 
> 
> Investor's Corner Articles:
> 
> ***11/14/01 "Not All Big Winners Hold Top
> Ratings"--"[W]hat about stocks that break out and
> have an EPS in the 70s? If everything else is in
> place, don't dismiss them. If you don't you might
> miss the next big stock winner."
> 
> 
> 
> ***2/14/02 "Let Market Leaders Govern Your Buys"--
> "If the group is among the top 50 or is rising
> quickly up the ranks, it will more likely become a
> leader in a good market." (italics are mine)
> 
> 
> 
> 2/19/02 "Great Stocks Aren't Always Flawless"--"How
> many stocks run through that checklist flawlessly?
> Not many. ... If the base is solid, it can still
> become a winner."
> 
> 
> 
> 3/11/02 "Stay on Top of Top Industries"-- " Watch
> for groups making big moves up the charts."
> 
> 
> 
> 1/15/02 "Not All Stocks First Hit All Time Highs"
> --discusses turnaround stocks
> 
> 
> 
> 8/31/01 "Market Washout Paves Way for New Bases"--
> resetting the base count after big corrections
> 
> 
> 
> 7/3/00 "Investing Requires More Than Top
> Ratings"--"Ratings don't tell you where a stock is
> in its price cycle, let alone the market...Ignoring
> charts could leave you buying a quality stock that's
> ripe for a sell off." This is the very reason that I
> don't mine for candidates with high EPS/RS rankings.
> You are more likely to find those getting ready to
> top, while ignoring those that are setting up and
> building strength.
> 
> 
> 
> 1/9/02 "Best Stocks Have High Price
> Strength"--Discusses RS in general. Interestingly,
> shows stocks at breakout where RS is high, but EPS
> is low. More evidence that mining based on high EPS
> to the exclusion of lower EPS's will often miss good
> breakout candidates.
> 
> 
> 
> 1/7/02 "How to Use Moving Averages Wisely"-- Good
> discussion of the use of 50 and 200 day moving
> averages.
> 
> 
> 
> 2/4/02 "A New View of Truly Active
> Stocks"--Discusses changes in the identification of
> active stocks in the IBD. Interestingly, they
> lowered both EPS and RS requirements for coverage
> to.... EPS and RS >=70. This supports the HTMMIS
> text from above. Also interesting, forward growth
> estimates required for coverage? 15%. 
> 
> 
> 
> 3/28/02 "Web Site Teaches You the Ropes"--Nice chart
> that identifies which concepts are covered in each
> of the IBD Learning Center articles.
> 
> 
> 
> Excerpted from the IBD Weblink (Italics are mine)
> 
> ITT Educational Services, 4/17/02
> 
> Before Tuesday's big move, ITT's Relative Price
> Strength Rating was a relatively tame 76. If you
> only look at stocks with IBD ratings of 80 or
> higher, then you're more likely to miss out on great
> stocks that had formed long bases before leaping to
> new highs. A 76 is perfectly acceptable if a stock's
> other ratings glow. The provider of various computer
> technology and other technical degree programs
> boasts an A for Accumulation/Distribution Rating
> (point 5), indicating mutual funds are snatching
> shares. Although the Commercial Services-Schools
> industry group currently holds a mediocre C ranking
> (point 6) and a D for Group Technical Rating (point
> 7), leading stocks such as Apollo Group, Bright
> Horizons, Career Education and Corinthian Colleges
> are tracing uptrends and are poised to make new
> highs (point 8). Finally, consistent earnings and
> sales growth over the past six years and outstanding
> return on equity (44.9% in fiscal 2000, 47.2% in
> 2001) award ITT an A+ Fundamental Rating (point 9). 
> 
> 
> 
> --Katherine
> 
>   ----- Original Message ----- 
>   To: canslim@lists.xmission.com 
>   Sent: Thursday, April 25, 2002 3:31 PM
>   Subject: [CANSLIM] How are you choosing your
> stocks?
> 
> 
>   Hello all:
> 
>   I'm not sure how people are choosing stocks right
>   now... are some rules being dismissed? When I've
> gone
>   looking, I come up with no candidates. Here is the
>   screen that I've built based on what I read in his
> two
>   books and online:
> 
>   Screen Criteria Parameters
> 
>   Earnings Per Share (EPS) Rating From 85 to 99
> 
>   Relative Price Strength (RS) Rating From 85 to 99
> 
>   Industry Group Relative Strength (GRP RS) Rating
> A, B
> 
>   Sales + Profit Margins + ROE (SMR) Rating A, B
> 
>   Accumulation/Distribution (Acc/Dis) Rating A, B
> 
>   % Change in Latest Quarter's EPS vs. Same Quarter
>   Prior Year Greater than or equal to: 25
> 
>   % Increase in Current Annual EPS Estimate vs. Last
>   Reported Annual EPS (TCFYEC) Greater than or equal
> to:
>   30
> 
>   EPS Have Been Accelerating Over the Latest 3
> Quarters
>   (%) True
> 
>   Annual % EPS Growth Rate of Last 3 Years Greater
> than
>   or equal to: 30
> 
>   % Change Latest Quarter's Sales vs. Same Quarter
> Prior
>   Year Greater than or equal to: 25
> 
>   Sales Have Been Accelerating Over the Latest 3
>   Quarters (%) True
> 
>   Annual % Sales Growth Rate of Last 3 Years Greater
>   than or equal to: 20
> 
>   Annual % Sales Growth Rate of Last 5 Years Greater
>   than or equal to: 20
> 
>   Average Sales % Change for Last 3 Quarters Greater
>   than or equal to: 25
> 
>   Company's Industry Group Rank From 1 to 40
> 
>   Sponsorship Rating A, B
> 
>   % of Stock Owned by Mutual Funds Greater than or
> equal
>   to: 1
> 
>   % of the number of Mutual Funds Owning for Current
>   Quarter vs. Prior Quarter Greater than or equal
> to: 1
> 
>   Current Price Greater than or equal to: 20.000
> 
>   Stocks trading at new 52-Week High AND Percentage
>   price is below 52-Week High From 0 to 10
> 
>   Current 50-Day Average Volume(1000) Greater than
> or
>   equal to: 200
> 
>   % Increase in Volume (Current Day) vs. 50-Day
> Average
>   Volume Greater than or equal to: 50
> 
>   Average After Tax Profit Margin (Last 2 Quarters)
>   Greater than or equal to: 13
> 
>   Companies With Accelerating After-Tax Profit
> Margins
>   During Latest 3 Quarters (%) True
> 
>   Pre-tax Annual Margins (Latest Fiscal Year
> Reported)
>   Greater than or equal to: 18
> 
>   ROE (Latest Fiscal Year Reported) Greater than or
>   equal to: 17
> 
>   Thank you
>   Dimitri Katsaros


=====
Quiquid latine dictum sit altum viditur

__________________________________________________
Do You Yahoo!?
Yahoo! Games - play chess, backgammon, pool and more
http://games.yahoo.com/

- -
- -To subscribe/unsubscribe, email "majordomo@xmission.com"
- -In the email body, write "subscribe canslim" or
- -"unsubscribe canslim".  Do not use quotes in your email.
Go to Jeff Salisbury LWGate Home Page.