RE: [CANSLIM] ROOM Redux

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: [CANSLIM] ROOM Redux
Date: Mon, 6 Jan 2003 21:12:37 -0600
Next Article (by Author): RE: [CANSLIM] DISH "Katherine Malm"
Previous Article (by Author): [CANSLIM] ROOM Redux "Katherine Malm"
Top of Thread: [CANSLIM] ROOM Redux "Katherine Malm"
Articles sorted by: [Date] [Author] [Subject]
Hi jans,

 ROOM's probably a good example for many things in chart reading, among them
the excellent points you made about rising on lower volume after a breakout.
I'll have to disagree with you on 9/13 being a handle/pivot area, however,
for two reasons. First, the area you describe in too low in the base (it's
below the midpoint of the base) and second, because it formed below the 200
day moving average. Both of those are primary requirements for a valid
handle. I think it's easy to see a chart in hindsight and say "if I'd
purchased here I would've made xx%" but the point of a cup with handle (or
an intermediate term base of any sort) is to wait until you have most of the
technicals pointing in the same direction to indicate the risk has been
lowered. Once the stock retraces a sufficient amount of the decline, some of
the risk is taken out. The idea of waiting until there is a pullback on low
volume above the midpoint helps to indicate the stock is more likely to move
onward and upward with some oomph and take out the resistance at the left
side of the cup. It's not necessary to wait until it's *passed* the left
side of the cup on the breakout, just that it has the volume to propel it
past the beginning of the last correction.

Charley made a great point in his post, i.e., the poor action in the base
and afterward were just evidence that something was amiss fundamentally. The
smart money was unloading stock into the rise and that "explains" the low
volume and subsequent failure.

My annotations on this chart are a little crowded, but this more clearly
marks out the cup and handle as of 11/14, before it started that wimpy rise,
complete retracement and ultimate the gap down.

http://www.cwhcharts.com/katherine/ROOM111402.JPG

Katherine

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Spencer48@aol.com
Sent: Monday, January 06, 2003 7:46 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] ROOM Redux


Katherine:

     Just to make life interesting:  You didn't ask for an opinion, but
here's mine regarding ROOM's chart.

     If one uses the left lip as the BO Pt. (the PP is about 70½), then the
volume was very poor.  So it failed on that point.

     However, if one uses 9/13 as the PP date with the Right Lip PP at 50½
(it made a false BO 9/27 to close at 51.44 on LESS than ADV), ROOM BrokeOut
10/11 to close near its high at 51.84 on very high volume.

     Now it rose in around 6 weeks over 40%.  That ain't hay, especially in
this volatile market. It then fell around 10 pts from its high on higher
volume than the prior weeks' advances.  That was a warning; as was the
stock's RS-Line not making much of a new high as the week's price rose 1.50
(ie. it's RS-Line seemed to be getting winded; its slope was not as steep).

     The final warning (outside of the down-gap) was obvious to anyone who
abides by WON's dictums on when to sell.  It fell, the next week on
relatively high volume (although less than ADV).  However, the clincher was
that it fell below it's 50DMA on the relatively high volume.

     The upshot is that if you had bought on its BO, you would have garnered
around 10% in 8 weeks (this, by the way, is around 65% annually).

     Katherine, as far as your analysis goes, I don't think I would have
viewed it that way.  I do see the wedging as the stock finishes what you
describe as the base; but as I said, I believe the base was completed
9/13-and then ROOM had 3 weeks of a Handle on lower volume.

     However, just looking at it right now (in your context), a sign that
the
stock was weak is that it continued its ascent, after BOing out 10/11.  If
you agree with my analysis (or even if you don't), you might want to note
that a stock, after BO, whose ascent is on low volume might indicate a weak
stock, and one to watch all the more closely for a sell signal.  It'd be
nice
if there were any data on this phenomenon (ie. whether or not a stock's
weakness can be predicted based on its ADV after it Breaks Out).

jans




In a message dated 1/6/2003 6:23:53 PM Eastern Standard Time,
kmalm@earthlink.net writes:

<< Every now and then a stock will act in a way that reaffirms my belief in
 technical analysis. ROOM is a good recent example and one that came up here
for
 discussion in the last month. At the time the base was finishing off, it
looked
 as though the it was wedging higher on low volume. That's enough to make me
mark
 off a chart like that as "flawed and too risky." ROOM managed to rise for a
 brief while, but started failing badly. Today it gapped down. Nice to know
this
 stuff really works!
  >>

- -
- -To subscribe/unsubscribe, email "majordomo@xmission.com"
- -In the email body, write "subscribe canslim" or
- -"unsubscribe canslim".  Do not use quotes in your email.



- -
- -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.