Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] Recent activity
Date: Fri, 16 Aug 2002 14:01:46 -0500
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Hi Eric,
Thoughts? Thoughts? How about "oh my goodness, what an *incredible* =
analysis!" Each and every point seems to have point/counterpoint written =
all over it --I'm looking forward to reading some great posts as a =
result of your efforts.
One particular question came to mind when reading your notes. That is, =
in any situation where there are pros/cons, must we resolve each and =
every one of them in order to resolve a course of action? If I were =
faced with two choices, each with a set of pros/cons, how would I chose =
between them? In this case, given the strength of arguments that you =
gave in both directions, my question to you would simply be, "what =
action will you take given what you have observed and what contingency =
plans would you put into place upon execution?" At some level, it seems =
that when given the preponderance of evidence on the markets as a whole =
that our choice as investors is more importantly, "am I willing to bet =
the farm one direction or the other, do I want to stand aside until the =
evidence is more squarely positioned in one camp vs another, or will I =
step in gingerly in one direction or the other while adding to that =
position as the evidence mounts?"
Katherine
----- Original Message -----=20
From: Eric Jaenike=20
To: canslim group=20
Sent: Friday, August 16, 2002 1:39 PM
Subject: [CANSLIM] Recent activity
Hi all-
Just wanted to throw out a few thoughts and get some feedback.
I am not terribly sanguine about the market right now, for a number of =
reasons. Before I go into why, I will review the things I see as =
bullish. If anyone has additional bull thoughts, please let me know.
Bull:
1.Heavy volume low mid-June, can be sign of climax bottom with sellers =
clearing out.=20
2. Lots of secondary indicators flash extremes generally associated =
with bottoms, including put/call, % bullish/bearish, nasdaq vs. NYSE =
trading volume, etc.
3. Rally confirms on indices.
4. Generally, up volume advances, down volume pullbacks.
5. Some breakouts occurring. These include (without regard to whether =
they have succeeded or not) CTSH FCN IMN XRAY DORL WTW PIXR CSTR ISLE =
BYD APOL.
6. Some potential leadership forming, including gaming (BYD ISLE), =
medical (LNCR AMSG HSIC), education (APOL CECO COCO), HMOs (CVH SIE =
MME), regional banks (if you're willing to include that group as =
leadership), retail (JASA PETM MIK KSS).
7. Skepticism about rally.
8. Certain secondary factors, such as the addressing of corporate =
governance issues, potentially improved accounting, recent strengthening =
of the dollar, etc
9. Increased insider buying.
10. Valuations have become compelling in certain areas/companies.
The concerns I have are both fundamental and technical.
Technical:
1. Secular bears generally don't end with a bang, but with a whimper =
('29, '74). Tendency toward climax bottom with reversal, followed by =
lower volume selloff into true bottom.
2. Secondary indicators are area code indicators. In a prolonged, hard =
bear, they can be early and flash signals repeatedly before market has =
truly bottomed. Unreliable.
3. Rally confirm came very late on Dow and S&P, came on low volume on =
Nasdaq and S&P 600 following large givebacks/distribution. Both late =
confirms and excessive givebacks are signs of weakness, not strength.
4. While volume on up days has been up and on down days, down, volume =
has generally been very light. I prefer to see strong volume confirming, =
not just up volume. This might be seasonal, but it seems very =
suspicious.
5. There have been a number of up days spurred by positive news (ex. =
Thurs 8/8 Brazil loan approval announcement, CSCO call, etc.) News =
driven rallies are suspect and failure prone.
6. A number of up days have been caused by buy programs, which create =
artifically positive looking days. Wed. was a great example. There has =
also been support from institutional, charter based reallocations from =
bonds (think 40 yr low on Treasury yield) to stocks. This is not =
discretionary, informed buying.
7. There appears to be short covering activity. Not sustainable in =
longer term.
8. Oils are rallying. Generally not a good sign for market.
9. While there have been breakouts, they have not been particularly =
numerous, nor have they been that powerful. I reviewed my breakout list =
from last September. I counted 16 reasonably solid breakouts from the =
low through 10/15 (CACI AZO SANG RMCI AHMH APOL CPRT AMSG NDN MYL BVF =
CRL FRED MIK USPH ADVP). I count only 11 in the roughly same time period =
now (CTSH SIE IMH XRAY DORL WTW PIXR CSTR ISLE BYD APOL. Not counting =
banks, and I might have missed some). It appears that there are fewer, =
or at least not more, breakouts over the recent period. In reviewing the =
lists, it also appears to me that there was generally tighter, more =
consistent, and more prominent leadership back then. That rally, of =
course, failed rather quickly. I actually consider the late '01 rally to =
have been more of an oversold bounce than a true rally.
10. Expanding on #9, I am not enamored of the power of the breakouts. =
Ex. WTW nasty bearish reversal tuesday, declining volume on rally =
resumption since. This is not the type of action I want to see.
11. There has been too much strength in tech in the past couple of =
days relative to the general market, especially Wed. I do not believe =
there is much, if any, chance that tech will provide sustained =
leadership here, and especially not large cap tech. See below for more.
12. Lots of broken charts, whippy runups.
Fundamentals:
1. Recent weakening in consumer spending and sentiment. Generally =
lackluster employment.
2. Market never got "cheap". Some have argued that on a P/E basis the =
market got to acceptable trough valuations. Without going into detail, I =
have found those arguments generally lacking.=20
3. Tech fundamentals are bad, and appear to be getting worse. Look at =
all the recent calls in the semiconductor space (AMAT TSCM KLIC, etc). =
Revenue and earnings guidedowns, capacity utilization dropping, etc. I =
think I posted a piece on this previously. That means the market will =
have to rally through bad tech news in the upcoming earnings period, =
with tech stocks going from very expensive to even more expensive. I do =
not consider the Dell or CSCO calls positive for the industry in =
general. They are share takers, and are benefitting at the expense of =
the rest of their respective industries. Recall, as Dell noted in its =
conference call, total PC sales in the second quarter DROPPED 10%. Note =
the relatively poor action in the SOX.
4. We have shifted short term influences in the market. 5 weeks ago, =
corporate governance/bad macroeconomic numbers were the short term =
driving force, pushing the market to its lows. We digested that =
information as we hit the lows on volume. At that point, the market was =
poised to spring back, either sustainably or unsustainably. We shifted =
to a new short term driving factor: the oversold condition of the market =
(note how all negative news is being ignored- ex. AMAT horrible call. =
That is, IMO, because news is not the current short term driving factor; =
the technical condition of the market is). This short term factor is =
being augmented by asset allocation and short covering. However, this =
short term factor will eventually dissipate, and we will get a new =
driving force. Given how poor, IMO, the quality of this rally has been, =
I think the market will be primed to latch onto something negative. We =
are currently in a bit of a news vacuum. If I'm not mistaken, we should =
be getting preannouncements starting sometime in September, as well as =
additional economic insight. If this data comes in poorly, the market =
might start reacting to it negatively, and this could be our new short =
term driving force.
5. There is still "headline risk" in the market. This would include =
things like the service and equipment swaps that Q has done with a =
variety of companies, including IBM and BLS (not widely known). GE has =
seen order slowdowns. There are a host of bankruptcies yet to be =
announced. F is in trouble. Housing looks vulnerable. Retail sales were =
weak the week of Aug 10, BBY preannounced, etc, so the consumer is still =
vulnerable. There are other problems as well. While I undertand that it =
often looks darkest before the dawn, it also looks darkest before =
midnight.
6. Europe looks terrible. Brazil is still a threat, depending on who =
wins the presidential elections, and we could still lose South America.
7. There is annecdotal evidence questioning the strength of the rally. =
Ex. pulp and paper inventories were up above typical seasonal increases, =
Ingersal Rand saw no evidence of an economic comeback, etc.
8. Yield spreads are very wide.
9. Energy sector debt at risk ($500 B), 3G programs, which were =
supposed to support telecom debt, have been weak.
10. First Call forward earnings growth has been coming down too =
quickly.
There are, of course, others. I would be willing to overlook many of =
these negatives IF the rally looked better. To me, it looks too much =
like the type of bounce we saw in September, but with a shorter =
duration.
Any thoughts?
Eric
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<DIV>Hi Eric,</DIV>
<DIV> </DIV>
<DIV>Thoughts? Thoughts? How about "oh my goodness, what an *incredible* =
analysis!" Each and every point seems to have point/counterpoint written =
all=20
over it --I'm looking forward to reading some great posts as a result of =
your=20
efforts.</DIV>
<DIV> </DIV>
<DIV>One particular question came to mind when reading your notes. That =
is, in=20
any situation where there are pros/cons, must we resolve each and every =
one of=20
them in order to resolve a course of action? If I were faced with two =
choices,=20
each with a set of pros/cons, how would I chose between them? In this =
case,=20
given the strength of arguments that you gave in both directions, my =
question to=20
you would simply be, "what action will you take given what you have =
observed and=20
what contingency plans would you put into place upon execution?" At some =
level,=20
it seems that when given the preponderance of evidence on the =
markets as a=20
whole that our choice as investors is more importantly, "am I willing to =
bet the=20
farm one direction or the other, do I want to stand aside until the =
evidence is=20
more squarely positioned in one camp vs another, or will I step in =
gingerly in=20
one direction or the other while adding to that position as the evidence =
mounts?"</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=3Dericjaenike@yahoo.com =
href=3D"mailto:ericjaenike@yahoo.com">Eric=20
Jaenike</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 group</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Friday, August 16, 2002 =
1:39=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] Recent =
activity</DIV>
<DIV><BR></DIV>
<P>Hi all-</P>
<P>Just wanted to throw out a few thoughts and get some feedback.</P>
<P>I am not terribly sanguine about the market right now, for a number =
of=20
reasons. Before I go into why, I will review the things I see as =
bullish. If=20
anyone has additional bull thoughts, please let me know.</P>
<P>Bull:</P>
<P>1.Heavy volume low mid-June, can be sign of climax bottom with =
sellers=20
clearing out. </P>
<P>2. Lots of secondary indicators flash extremes generally associated =
with=20
bottoms, including put/call, % bullish/bearish, nasdaq vs. NYSE =
trading=20
volume, etc.</P>
<P>3. Rally confirms on indices.</P>
<P>4. Generally, up volume advances, down volume pullbacks.</P>
<P>5. Some breakouts occurring. These include (without regard to =
whether they=20
have succeeded or not) CTSH FCN IMN XRAY DORL WTW PIXR CSTR ISLE BYD =
APOL.</P>
<P>6. Some potential leadership forming, including gaming (BYD ISLE), =
medical=20
(LNCR AMSG HSIC), education (APOL CECO COCO), HMOs (CVH SIE MME), =
regional=20
banks (if you're willing to include that group as leadership), retail =
(JASA=20
PETM MIK KSS).</P>
<P>7. Skepticism about rally.</P>
<P>8. Certain secondary factors, such as the addressing of corporate=20
governance issues, potentially improved accounting, recent =
strengthening of=20
the dollar, etc</P>
<P>9. Increased insider buying.</P>
<P>10. Valuations have become compelling in certain =
areas/companies.</P>
<P>The concerns I have are both fundamental and technical.</P>
<P>Technical:</P>
<P>1. Secular bears generally don't end with a bang, but with a =
whimper ('29,=20
'74). Tendency toward climax bottom with reversal, followed by lower =
volume=20
selloff into true bottom.</P>
<P>2. Secondary indicators are area code indicators. In a prolonged, =
hard=20
bear, they can be early and flash signals repeatedly before =
market has=20
truly bottomed. Unreliable.</P>
<P>3. Rally confirm came very late on Dow and S&P, came on low =
volume on=20
Nasdaq and S&P 600 following large givebacks/distribution. Both =
late=20
confirms and excessive givebacks are signs of weakness, not =
strength.</P>
<P>4. While volume on up days has been up and on down days, down, =
volume has=20
generally been very light. I prefer to see strong volume confirming, =
not just=20
up volume. This might be seasonal, but it seems very suspicious.</P>
<P>5. There have been a number of up days spurred by positive news =
(ex. Thurs=20
8/8 Brazil loan approval announcement, CSCO call, etc.) News driven =
rallies=20
are suspect and failure prone.</P>
<P>6. A number of up days have been caused by buy programs, which =
create=20
artifically positive looking days. Wed. was a great example. There has =
also=20
been support from institutional, charter based reallocations from =
bonds (think=20
40 yr low on Treasury yield) to stocks. This is not discretionary, =
informed=20
buying.</P>
<P>7. There appears to be short covering activity. Not sustainable in =
longer=20
term.</P>
<P>8. Oils are rallying. Generally not a good sign for market.</P>
<P>9. While there have been breakouts, they have not been particularly =
numerous, nor have they been that powerful. I reviewed my breakout =
list from=20
last September. I counted 16 reasonably solid breakouts from the low =
through=20
10/15 (CACI AZO SANG RMCI AHMH APOL CPRT AMSG NDN MYL BVF CRL FRED MIK =
USPH=20
ADVP). I count only 11 in the roughly same time period now (CTSH SIE =
IMH XRAY=20
DORL WTW PIXR CSTR ISLE BYD APOL. Not counting banks, and I =
might have=20
missed some). It appears that there are fewer, or at least not more, =
breakouts=20
over the recent period. In reviewing the lists, it also appears to me =
that=20
there was generally tighter, more consistent, and more=20
prominent leadership back then. That rally, of course, failed =
rather=20
quickly. I actually consider the late '01 rally to have been more of =
an=20
oversold bounce than a true rally.</P>
<P>10. Expanding on #9, I am not enamored of the power of the =
breakouts. Ex.=20
WTW nasty bearish reversal tuesday, declining volume on rally =
resumption=20
since. This is not the type of action I want to see.</P>
<P>11. There has been too much strength in tech in the past couple of =
days=20
relative to the general market, especially Wed. I do not believe there =
is=20
much, if any, chance that tech will provide sustained leadership here, =
and=20
especially not large cap tech. See below for more.</P>
<P>12. Lots of broken charts, whippy runups.</P>
<P>Fundamentals:</P>
<P>1. Recent weakening in consumer spending and sentiment. Generally=20
lackluster employment.</P>
<P>2. Market never got "cheap". Some have argued that on a P/E basis =
the=20
market got to acceptable trough valuations. Without going into detail, =
I have=20
found those arguments generally lacking. </P>
<P>3. Tech fundamentals are bad, and appear to be getting worse. Look =
at all=20
the recent calls in the semiconductor space (AMAT TSCM KLIC, etc). =
Revenue and=20
earnings guidedowns, capacity utilization dropping, etc. I think I =
posted a=20
piece on this previously. That means the market will have to rally =
through bad=20
tech news in the upcoming earnings period, with tech stocks going from =
very=20
expensive to even more expensive. I do not consider the Dell or CSCO =
calls=20
positive for the industry in general. They are share takers, and are=20
benefitting at the expense of the rest of their respective industries. =
Recall,=20
as Dell noted in its conference call, total PC sales in the second =
quarter=20
DROPPED 10%. Note the relatively poor action in the SOX.</P>
<P>4. We have shifted short term influences in the market. 5 weeks =
ago,=20
corporate governance/bad macroeconomic numbers were the short term =
driving=20
force, pushing the market to its lows. We digested that information as =
we hit=20
the lows on volume. At that point, the market was poised to spring =
back,=20
either sustainably or unsustainably. We shifted to a new short term =
driving=20
factor: the oversold condition of the market (note how all negative =
news is=20
being ignored- ex. AMAT horrible call. That is, IMO, because news is =
not the=20
current short term driving factor; the technical condition of the =
market is).=20
This short term factor is being augmented by asset allocation and =
short=20
covering. However, this short term factor will eventually dissipate, =
and we=20
will get a new driving force. Given how poor, IMO, the quality of this =
rally=20
has been, I think the market will be primed to latch onto something =
negative.=20
We are currently in a bit of a news vacuum. If I'm not mistaken, we =
should be=20
getting preannouncements starting sometime in September, as well as =
additional=20
economic insight. If this data comes in poorly, the market might start =
reacting to it negatively, and this could be our new short term =
driving=20
force.</P>
<P>5. There is still "headline risk" in the market. This would include =
things=20
like the service and equipment swaps that Q has done with a variety of =
companies, including IBM and BLS (not widely known). GE has seen =
order=20
slowdowns. There are a host of bankruptcies yet to be announced. F is =
in=20
trouble. Housing looks vulnerable. Retail sales were weak the week of =
Aug 10,=20
BBY preannounced, etc, so the consumer is still vulnerable. There are =
other=20
problems as well. While I undertand that it often looks darkest before =
the=20
dawn, it also looks darkest before midnight.</P>
<P>6. Europe looks terrible. Brazil is still a threat, depending on =
who wins=20
the presidential elections, and we could still lose South America.</P>
<P>7. There is annecdotal evidence questioning the strength of the =
rally. Ex.=20
pulp and paper inventories were up above typical seasonal increases, =
Ingersal=20
Rand saw no evidence of an economic comeback, etc.</P>
<P>8. Yield spreads are very wide.</P>
<P>9. Energy sector debt at risk ($500 B), 3G programs, which were =
supposed to=20
support telecom debt, have been weak.</P>
<P>10. First Call forward earnings growth has been coming down too=20
quickly.</P>
<P>There are, of course, others. I would be willing to overlook many =
of these=20
negatives IF the rally looked better. To me, it looks too much like =
the type=20
of bounce we saw in September, but with a shorter duration.</P>
<P>Any thoughts?</P>
<P>Eric</P>
<P> </P>
<P><BR>
<HR SIZE=3D1>
<B>Do You Yahoo!?</B><BR><A=20
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href=3D"http://rd.yahoo.com/careers/mailsig/new/*http://www.hotjobs.com">=
HotJobs,=20
a Yahoo! service</A> - Search Thousands of New =
Jobs</BLOCKQUOTE></BODY></HTML>
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