Re: [CANSLIM] Case Study

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] Case Study
Date: Sun, 18 Aug 2002 17:00:02 -0500
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Hi Norm,

Here's another great example as to how technicals tell the story more
clearly than the fundamentals or the news. On April 8th, the SEC announced
that it was closing its investigation.

"PolyMedica Corporation Receives Notice That SEC Investigation Has
Terminated Apr 08, 2002
PolyMedica Corporation announced that it received a notice from the
Securities and Exchange Commission stating that the Commission's present
staff inquiry into the Company has been terminated. The notice also states
that no enforcement action has been recommended to the Commission." (See:
http://yahoo.marketguide.com/MGI/signdevt.asp?target=/stocks/companyinformat
ion/signdevt&Ticker=PLMD)

(A read through the significant developments itself is like a mine field of
red flags. )

That announcement was followed by a big price spike, just as you noted,  as
people reacted to the news.  This spike came, however after a steep decline
in the price and was immediately followed by a high volume reversal day and
a series of days where price was climbing on low volume ("wedging"
action)--the stuff of sell rules if nothing else. Notice that price at that
point continued on the path of least resistance and the downtrend began
again.

Price action essentially told us already what wasn't stated until this
week's 10Q, i.e., the original investigation was being expanded in scope. I
didn't include all the details in my original quote, but the status of the
law suits and investigation are included in the section under "Legal
Proceedings." (See link to SEC filing in my original post)

As Tom suggested earlier today, there's no telling how all this will play
out, and the powers that be may well be exonerated. But, in the world of
CANSLIM investing, there's no reason to take the risk in the meantime. If
price/volume action and fundamentals set up appropriately, then PLMD may one
day again be a good candidate. In the meantime, once there's a stinky fish
in the works.....it's hard to get out the stench.

Katherine

- ----- Original Message -----
From: "Norman" <theboyd@tisd.net>
To: <canslim@lists.xmission.com>
Sent: Sunday, August 18, 2002 12:14 PM
Subject: Re: [CANSLIM] Case Study


| Crimony!  They got more troubles than freshmen at a fraternity hazing<g>
|
| I guess no one noticed anything amiss on April 8th; what a spike!
|
| Norm
|
| ----- Original Message -----
| From: "Katherine Malm" <kmalm@earthlink.net>
| To: <canslim@lists.xmission.com>
| Sent: Sunday, August 18, 2002 11:12 AM
| Subject: [CANSLIM] Case Study
|
|
| Hi All,
|
| Just thought I'd pass on a recent example that demonstrates the following
| points:
|
| (1) Fundamental screening based on past performance doesn't always "tell
the
| tale"
| (2) Technicals always lead to the downside
| (3) It pays to perform due diligence
| (4) Never be tempted to enter a stock while it is still basing
|
| Here are the stats aside from the technical condition:
| EPS = 92, SMR = A, EPS Growth rate (historical) = 61%, Composite rating =
| 82, ROE = 21%, Debt = 0%.
|
| Sounds good, doesn't it? Now, take a look at a chart of PLMD.
|
| When you're finished, read this passage excerpted from their 10Q filed
this
| week:
| Item 13 Under "Notes to Consolidated Financial Statements" (Highlighting
is
| mine)
|
| . ... The regulations that govern Medicare reimbursement are complex and
our
| compliance with those regulations may be reviewed by federal agencies,
| including the Department of Health and Human Services, the Department of
| Justice ("DOJ"), and the Food and Drug Administration ("FDA"). The U.S.
| Attorney's Office for the Southern District of Florida, with the
assistance
| of the Federal Bureau of Investigation ("FBI") and Department of Health &
| Human Services' Office of Inspector General ("OIG"), is investigating
| allegations of healthcare fraud, improper revenue recognition and
| obstruction of justice by PolyMedica. Both civil and criminal
investigations
| are being conducted. We are cooperating with the investigations. We cannot
| accurately predict the outcome of these proceedings at this time, and have
| therefore not recorded any charges relating to their outcome.
|
| We and three individuals who are or were officers are defendants in a
| lawsuit alleging violations of certain sections and rules of the
Securities
| Exchange Act of 1934 (the "Exchange Act"). In addition, there is a
| derivative action against the directors and two individuals who are or
were
| officers in Massachusetts state court alleging certain breaches of
fiduciary
| duty. We, the named individuals, and the Board of Directors believe that
we
| have meritorious defenses to the claims made against us in the actions in
| which we are defendants and intend to contest the claims vigorously.
| Although we do not consider an unfavorable outcome to the various claims
| probable, we cannot accurately predict their ultimate disposition, and
have
| therefore not recorded any charges related to their outcome. An
unfavorable
| outcome could have a material effect on our financial position and results
| of operations. Please see Item 1 of Part II, Legal Proceedings, for a more
| complete description of these claims.
|
| If any of these investigations results in a determination that we have
| failed to comply with the regulations governing Medicare reimbursement or
| financial reporting or have otherwise committed healthcare fraud or
| securities law violations, we could be subject to delays or loss of
| reimbursement, substantial fines or penalties, and other sanctions. An
| adverse determination could have a material effect on our financial
position
| and results of operations.
|
| (ref:
|
http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0000950135-02-0
| 03770)
|
| Add to that a sudden resignation of their CEO at the beginning of the
month.
|
| --Katherine
|
|
|
|
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