Re: [CANSLIM] Breakout Blues

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] Breakout Blues
Date: Thu, 22 Aug 2002 07:41:43 -0400
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Robert, truth is, for those exercising good CANSLIM discipline and =
adherence at least to the major rules, they have spent the past two =
years almost continuously in cash. There have been some short rallies =
where partial investment might have been justified, but only that. Once =
it was clear that a bear market was established and continuing, then a =
better adaptation was to turn CANSLIM upside down, and look for short =
candidates. Much riskier, not for the novice (except on paper), but =
there was some serious money to make in this time period that way.

Maintaining cash, and protecting principal, is far less work than trying =
to make money on the long side during a bear market.

- ----- Original Message -----=20
From: RWElmer@aol.com=20
To: canslim@lists.xmission.com=20
Sent: Thursday, August 22, 2002 3:08 AM
Subject: Re: [CANSLIM] Breakout Blues


Greetings All,=20

The discussion of Breakouts deals with the one issue I have always had =
with CANSLIM (and that *does* mean that I enthusiastically embrace the =
rest of it), and that's buying only on this specific pattern and its =
variants. In my humble opinion there is a proper time to use this =
technique, and that's when the smart money is pouring into these stocks =
and there is enough of this going on that it overwhelms any short term =
trading interests. (This is the stage mentioned earlier when the swing =
trader transitions to momentum.) That is why volume is so important on =
Breakouts. You're intelligently riding the stampede at those times. =
Times like the current environment retain the memory of all the failed =
breakouts from earlier in the year and create alot of uncertainty. In =
retrospect, those earlier failures were influenced by the fact that the =
Market was in the process of topping off the September - January rally. =
Breakouts are bound to fail when M is doing this. In fact that's a =
confirming indicator of a downturn, in my book, just luck IBD's search =
for succeeding Breakouts is validation for a new uptrend. The question =
right now is which environment are we in? We see lots of "proper" =
signals to identify at least an intermediate uptrend; be they higher =
highs/higher lows, breadth, volume being heavier on up days, good stocks =
forming bases or breaking out and holding, etc. But the overall volume =
seems to lack conviction. The fact that there is enough hesitation both =
ways, while stocks continue to climb, makes me believe we are going up =
for at least another couple of weeks. I remember having this same =
feeling in late September '01 thinking that the Market seemed to be =
saying to get in but my emotions were listening to all the arguments =
against it, backed mostly by opinion. (And yes I'm aware of the irony as =
I'm giving my opinion.)=20

Back to the mechanics of the failed breakouts. I think there are swing =
traders who play those breakouts exactly contrary to CANSLIMmers during =
times of weakness in the Market. They buy the bottom of the handles as =
the trading dries up in anticipation of the eventual move. If they're =
dead wrong their stops are just underneath the lows of the handle, so =
losses are minor. If they're partly wrong they sell as soon as evidence =
shows the pivot point resistance is going to hold. If they're right, =
they sell to the CANSLIMmers' buying of the Breakout as the candle =
prints start expanding. What they've gained is the move from bottom of =
the handle to above the pivot point in probably a day to three's time; =
plus they've sold into excellent liquidity, namely CANSLIMmers jumping =
on the Breakout. At this point all that's happened is that the trader =
bought up shares in anticipation of the move, the move happens and =
CANSLIM buys what the traders held, then there's nobody left to buy so =
the move breaks down.=20

Other swing traders don't anticipate, they wait to see the moved =
confirmed and buy after the stock's first retest of the pivot point, or =
even the lows of the base. The bounce back from *that* is where maybe =
the swingers become mo-mos and help the move ultimately succeed. Of =
course if the Market's falling apart, you'd only have the swingers =
taking advantage of inexperienced buyers chasing breakouts in a sick =
Market. Something none of us do here :)) In a newly healthy Market, when =
the true leaders of tomorrow start to exert their dominance, then I have =
no doubt CANSLIM Breakouts work exactly as WON describes.=20

That brings about another point. I wonder if it's possible to exercise a =
true CANSLIM discipline right now anyway, as the types of Leaders WON =
describes typically would not have surfaced in such close proximity to a =
major Bear like this one; although that's speculation on my part that =
others may refute. Instead I think what we are mostly doing is using =
CANSLIM to find the best stocks this Market has to give, but not the =
classic early Bull Leaders yet.=20

What I find encouraging with this group is that there are several people =
adapting to these Market conditions and buying before the Breakouts. I =
may be way off base, but I think that's recognizing and adapting to the =
competition. There is a certain, well-respected small cap guru here who =
I believe has done this for a long while and who seems to do this =
especially well, by what I've seen. In this Market, I think it just may =
require these kinds of adjustments. But I also do believe the eventual =
Bull will make a genius out of WON and C&H Breakouts once again.=20

Anyway, that's my take on things. FWIW.=20

Good investing All,=20

What I find encouraging with this group is that there's the rumblings of =
those looking=20

Robert W. Elmer=20
Coldwell Banker First Shasta=20
2837 Bechelli Ln.=20
Redding, CA 96002=20
RWElmer@aol.com=20
221-9556 or 1-800-348-7939 ext.156=20
www.robertelmer.com=20

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<DIV><FONT face=3DArial>Robert, truth is, for those exercising good =
CANSLIM=20
discipline and adherence at least to the major rules, they have spent =
the past=20
two years almost continuously in cash. There have been some short =
rallies where=20
partial investment might have been justified, but only that. Once it was =
clear=20
that a bear market was established and continuing, then a better =
adaptation was=20
to turn CANSLIM upside down, and look for short candidates. Much =
riskier, not=20
for the novice (except on paper), but there was some serious money to =
make in=20
this time period that way.</FONT></DIV>
<DIV><FONT face=3DArial></FONT>&nbsp;</DIV>
<DIV><FONT face=3DArial>Maintaining cash, and protecting principal, is =
far less=20
work than trying to make money on the long side during a bear=20
market.</FONT></DIV>
<DIV><FONT face=3DArial></FONT>&nbsp;</DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3DRWElmer@aol.com =
href=3D"mailto:RWElmer@aol.com">RWElmer@aol.com</A> </DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
 </DIV>
<DIV><B>Sent:</B> Thursday, August 22, 2002 3:08 AM</DIV>
<DIV><B>Subject:</B> Re: [CANSLIM] Breakout Blues</DIV></DIV>
<DIV><BR></DIV><FONT face=3Darial,helvetica><FONT size=3D2>Greetings =
All,=20
<BR><BR>The discussion of Breakouts deals with the one issue I have =
always had=20
with CANSLIM (and that *does* mean that I enthusiastically embrace the =
rest of=20
it), and that's buying only on this specific pattern and its variants. =
In my=20
humble opinion there is a proper time to use this technique, and that's =
when the=20
smart money is pouring into these stocks and there is enough of this =
going on=20
that it overwhelms any short term trading interests. (This is the stage=20
mentioned earlier when the swing trader transitions to momentum.) That =
is why=20
volume is so important on Breakouts. You're intelligently riding the =
stampede at=20
those times. Times like the current environment retain the memory of all =
the=20
failed breakouts from earlier in the year and create alot of =
uncertainty. In=20
retrospect, those earlier failures were influenced by the fact that the =
Market=20
was in the process of topping off the September - January rally. =
Breakouts are=20
bound to fail when M is doing this. In fact that's a confirming =
indicator of a=20
downturn, in my book, just luck IBD's search for succeeding Breakouts is =

validation for a new uptrend. The question right now is which =
environment are we=20
in? We see lots of "proper" signals to identify at least an intermediate =

uptrend; be they higher highs/higher lows, breadth, volume being heavier =
on up=20
days, good stocks forming bases or breaking out and holding, etc. But =
the=20
overall volume seems to lack conviction. The fact that there is enough=20
hesitation both ways, while stocks continue to climb, makes me believe =
we are=20
going up for at least another couple of weeks. I remember having this =
same=20
feeling in late September '01 thinking that the Market seemed to be =
saying to=20
get in but my emotions were listening to all the arguments against it, =
backed=20
mostly by opinion. (And yes I'm aware of the irony as I'm giving my =
opinion.)=20
<BR><BR>Back to the mechanics of the failed breakouts. I think there are =
swing=20
traders who play those breakouts exactly contrary to CANSLIMmers during =
times of=20
weakness in the Market. They buy the bottom of the handles as the =
trading dries=20
up in anticipation of the eventual move. If they're dead wrong their =
stops are=20
just underneath the lows of the handle, so losses are minor. If they're =
partly=20
wrong they sell as soon as evidence shows the pivot point resistance is =
going to=20
hold. If they're right, they sell to the CANSLIMmers' buying of the =
Breakout as=20
the candle prints start expanding. What they've gained is the move from =
bottom=20
of the handle to above the pivot point in probably a day to three's =
time; plus=20
they've sold into excellent liquidity, namely CANSLIMmers jumping on the =

Breakout. At this point all that's happened is that the trader bought up =
shares=20
in anticipation of the move, the move happens and CANSLIM buys what the =
traders=20
held, then there's nobody left to buy so the move breaks down. =
<BR><BR>Other=20
swing traders don't anticipate, they wait to see the moved confirmed and =
buy=20
after the stock's first retest of the pivot point, or even the lows of =
the base.=20
The bounce back from *that* is where maybe the swingers become mo-mos =
and help=20
the move ultimately succeed. Of course if the Market's falling apart, =
you'd only=20
have the swingers taking advantage of inexperienced buyers chasing =
breakouts in=20
a sick Market. Something none of us do here :)) In a newly healthy =
Market, when=20
the true leaders of tomorrow start to exert their dominance, then I have =
no=20
doubt CANSLIM Breakouts work exactly as WON describes. <BR><BR>That =
brings about=20
another point. I wonder if it's possible to exercise a true CANSLIM =
discipline=20
right now anyway, as the types of Leaders WON describes typically would =
not have=20
surfaced in such close proximity to a major Bear like this one; although =
that's=20
speculation on my part that others may refute. Instead I think what we =
are=20
mostly doing is using CANSLIM to find the best stocks this Market has to =
give,=20
but not the classic early Bull Leaders yet. <BR><BR>What I find =
encouraging with=20
this group is that there are several people adapting to these Market =
conditions=20
and buying before the Breakouts. I may be way off base, but I think =
that's=20
recognizing and adapting to the competition. There is a certain, =
well-respected=20
small cap guru here who I believe has done this for a long while and who =
seems=20
to do this especially well, by what I've seen. In this Market, I think =
it just=20
may require these kinds of adjustments. But I also do believe the =
eventual Bull=20
will make a genius out of WON and C&amp;H Breakouts once again. =
<BR><BR>Anyway,=20
that's my take on things. FWIW. <BR><BR>Good investing All, <BR><BR>What =
I find=20
encouraging with this group is that there's the rumblings of those =
looking=20
<BR><BR><B>Robert W. Elmer <BR>Coldwell Banker First Shasta <BR>2837 =
Bechelli=20
Ln. <BR>Redding, CA 96002</B> <BR></FONT><FONT lang=3D0 face=3DArial =
color=3D#0080ff=20
size=3D2 FAMILY=3D"SANSSERIF"><B>RWElmer@aol.com</FONT><FONT lang=3D0 =
face=3DArial=20
color=3D#000000 size=3D2 FAMILY=3D"SANSSERIF"></B> <BR></FONT><FONT =
lang=3D0 face=3DArial=20
color=3D#0000ff size=3D2 FAMILY=3D"SANSSERIF"><B>221-9556 or =
1-800-348-7939=20
ext.156</FONT><FONT lang=3D0 face=3DArial color=3D#000000 size=3D2=20
FAMILY=3D"SANSSERIF"></B> <BR></FONT><FONT lang=3D0 face=3DArial =
color=3D#800080 size=3D2=20
FAMILY=3D"SANSSERIF"><B>www.robertelmer.com</B></FONT> =
</FONT></BODY></HTML>

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