Re: [CANSLIM] M - How low will it go - reverse CANSLIM.

From: "Ira Post" <ip108@yahoo.com>
Subject: Re: [CANSLIM] M - How low will it go - reverse CANSLIM.
Date: Sun, 21 Jul 2002 20:44:46 -0400
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Victor, I'm glad you're interested.  I threw that out to see if anyone had
any thoughts on it.  It would be very useful to identify some simple basic
principles to identify stocks that one would consider shorting.  Maybe it
could be done using the CANSLIM variables - though instead of going for
ratings of 80 or 90 and higher, we could look for ratings of 10 or 20 and
lower.

I have puts on SPX and am shorting SPY.  It's working well.  Identifying
vulnerable stocks could work even better in this kind of market.

Ira
- ----- Original Message -----
From: <vchang@win-invest.com>
To: <canslim@lists.xmission.com>
Sent: Sunday, July 21, 2002 6:45 PM
Subject: Re: [CANSLIM] M - How low will it go - reverse CANSLIM.


> First I want to say that this is one of the best lists I have ever joined
in
> terms of the signal to noise ratio and general quality of contribution.
>
> <SNIP>
> Maybe what we need is a kind of reverse CANSLIM to help us take advantage
of
> the bear markets.  Some basic principals to identify falling stocks - both
> fundamentally and technically as CANSLIM does so well with rising stocks.
> <SNIP>
>
> Sorry about such a long post due to the included article from IBD.  :-)
>
> I was intrigued by Ira's idea of turning CANSLIM on its head
> (Counter-CANSLIM or ANTI-CANSLIM?), and found that real life hedge fund
> managers are indeed doing this for real.  (See IBD ARticle attached
below).
>
> WON did not have a lot of good things to say about shorting stocks,  I do
> wonder if anyone on this list has been successful shorting.
>
> One shorting idea I am trying out is to take a small (less that 20% of the
> portfolio's value) portfolio of shorts in QQQ, SPY, DIA and an ISHARE of
the
> UK market index.
>
> Besides trying to make a little money, the big idea being doing this is
that
> if I have a real short position in the major market indices then I will be
> highly focused and motivated in monitoring them and the relevent charts -
> hopefully improving the chance of judging M correctly as well as noticing
> divergence between major indices etc.   I also feel safer shorting ETFs as
> opposed to individual stocks.
>
> Regards
>
> Victor Chang (vchang@win-invest.com)
> www.win-invest.com
>
> =============  FROM IBD =============================
> General News
> Monday, July 22, 2002
> Looking for a recent story in IBD? Visit the IBD Archives. Printer-Ready
> Version
>
> E-mail this Article
> to a Friend
>
>
> Who Can Crow In This Market? Short-Selling Pros Sitting Pretty
> BY KEN HOOVER
> INVESTOR'S BUSINESS DAILY
>
> Short sellers are in hog heaven. And shorting is getting more popular as
the
> bear market grinds on.
> New York Stock Exchange short interest released after Friday's close was a
> record 7.6 billion shares. The short interest ratio was 4.3, down from
> recent highs due to heavy volume.
> Most investors watch their stakes decline. Others content themselves with
> money-market rates while waiting for a new bull market. Short sellers
profit
> by selling borrowed stock and buying it back later at a lower price.
> Indeed, the short sellers are raking it in. The short-biased component of
> the CSFB/Tremont Hedge Fund Index gained 7.6% in June and is up 9.3% year
to
> date. The highly dangerous Rydex Venture 100 Fund, which shorts the Nasdaq
> 100 index, leveraged by a factor of two, is up 95% for the year.
> Short selling is tricky. Even professionals confess it's harder to find
the
> right entry point than it is when going long with a stock. Bear markets
and
> falling stocks have fierce whipsaws, sometimes crashing down one day and
> rocketing up the next as short sellers close out their positions by buying
> back shares, or covering, as it's called.
>
>
>
>  Image: Shortage Of Fear?
>
>
>
> Robert Maltbie's Millennium Asset Management in Nipomo, Calif., runs $20
> million going both long and short. He thinks the market now is ruled by
> hedge funds that are aggressively shorting.
> Spectacular Reversals
> He says that's why we're seeing huge reversals, such as last Monday's
> snapback from a 400-point Dow deficit and the 324-point, post-holiday July
5
> rally.
> Those rallies are being driven by hedge funds covering, he thinks.
> It may be good for the bulls that so many investors are shorting. When
> everybody is so pessimistic, maybe a new bull market is right around the
> corner.
> The short-interest ratio is one way to measure the popularity of short
> selling. Since May 1931, NYSE members have reported their and their
> customers' short positions to the exchange as of the 15th of each month.
> The exchange releases the number four days later. Because trades settle in
> three days, the release is a snapshot of short selling on the 12th,
assuming
> it's a business day.
> The ratio is calculated by dividing the total number of shares held short
by
> the average daily volume for the past month. A short interest ratio of 4.3
> means it takes 4.3 days of average volume to cover all those shares held
> short.
> IBD charts the short-interest ratio daily on the General Markets Page, B2
in
> the print edition. Rather than use the past month's volume as of the 15th,
> though, IBD calculates the ratio with volume from the prior month as of
the
> day before publication.
> For decades, the short-interest ratio was one of the market's best
contrary
> psychological indicators.
> "Readings over 1.75 are followed by rising prices between 94% and 98% of
the
> time, about as close to perfect as one can expect in the stock market,"
> wrote Norman Fosback in his '75 classic, "Stock Market Logic."
> But in the late '70s, the ratio started rising due to professional hedging
> and arbitrage strategies. In June '97, the ratio hit an all-time high of
> 7.34, a level Fosback never dreamed of.
> But it still has value. It dropped to 3.70 in January '01, when investors
> were greedy, and has been rising since then as fear built. Some analysts
> track its variance from a 12- or 16-month moving average.
> Since December '86, the Nasdaq has released a short-interest report eight
> business days after the 15th of each month. It breaks down short interest
> between big and small caps.
> Nasdaq stocks are less likely to be part of an arbitrage strategy. So it's
> no surprise the Nasdaq small-cap short-interest ratio has been a somewhat
> better sentiment barometer.
> It hit an all-time low of 0.36 as the market peaked in March '00. It hit
an
> all-time high of 3.07 as the market sold off in September '01. June's
> reading was 1.56, showing above-average bearishness.
> Among the hedge funds that have benefited from short selling is Maltbie's
> Argonaut Fund, which goes long and short. It's up 11.5% year to date.
That's
> driven by a 23% profit in his short positions.
> "Part of our strength is that we are short selling on a daily basis in
good
> times and bad," Maltbie said. Dianon Systems (DIAN) is one of his recent
> short-side successes. He shorted as it broke down early this month on an
> earnings warning. He covered quickly because he wanted to lock in profits
> before other short sellers lock in theirs.
> "You don't know when they're going to cover or why, but you know they are,
> so you better cover before they do," he said.
> Maltbie uses the CAN SLIM system to buy stocks. He turns the system upside
> down for shorting, buying stocks that break down, showing declining
relative
> strength and often buying as a stock breaks below a key support level,
like
> the 50-day or 200-day moving average.
> "Old support becomes new resistance," he said.
> Mark Boucher, who runs money from his Investment Research Associates in
> Menlo Park, Calif., also likes to take profits quickly when he
successfully
> shorts a stock.
> He takes partial profits when he's ahead 40%, then uses trailing stops to
> take the rest unless he covers into a selling climax or a big rally on
> volume. "A bear market rally can erase six months of profits in two days,"
> he said.
> He also uses some IBD techniques in reverse. He looks for short-sell
> candidates on the new low list and among stocks with declining earnings
> growth, declining institutional sponsorship and high debt.
> He likes to short when a stock breaks down after a four-week
consolidation.
> Thanks to short selling, he's up 10% this year. He says 2000 was his best
> year. He was up 70%. Many stocks, he says, were declining even as the tech
> and growth stocks were still advancing.
>
>
>
>
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