RE: [CANSLIM] New to the group

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: [CANSLIM] New to the group
Date: Mon, 27 Jan 2003 10:44:44 -0600

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Hi Rolf,

The idea that the market is forward looking is always reflected first in the
technicals. That is, when investors' expectations of the future growth
and/or outlook of a business is lowered, you will always see that in the
declining price performance before you see it in the reported financials.
That lowered expectation may come from expectations of weaker general
economic conditions, weaker performance of the business vs competitors,
weaker industry conditions, etc. It doesn't really matter the reason, just
that the future is not projected to continue on the current path. That means
that yes, a stock with strong current fundamentals will show deteriorating
technicals ahead of the reported decline in fundamentals (or more generally,
weak technicals reflect some decline in future expectations). Whether real
or perceived, honest or manipulated due to the leakage Tom refers to, it
doesn't matter.

It works in reverse as well and that's the reason CANSLIM works the way it
does. Say there's a company that has been demonstrating growth
characteristics and now is getting ready to step on the gas and accelerate
that growth curve. Investors will pile into the stock in anticipation of
that acceleration and continued growth. That in turn drives up the price of
the stock. The notion of CANSLIM is that you look for the point in time
where people are *just* starting to pile in and go along for the ride (e.g.
DELL in 94-95). At some point, however, the company's growth begins to slow
(e.g. DELL in late 99). Those who perceive the slow down will start to take
profits. Only sucker money is left and shares are generally being passed
from strong to weak hands (though it ususually happens a bit faster than
what we saw in the hyperextended market of the late '90's). Again, the
notion of CANSLIM is to recognize the signs in the technicals and step
aside. That's reason enough for me not to narrow a primary filter search to
*just* stocks with very strong fundamentals, but instead to give some leeway
for stocks that are just *starting* to show fundamental outperformance in
combination with technical outperformance and/or improvement.

Katherine

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Rolf Hertenstein
Sent: Saturday, January 25, 2003 10:14 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] New to the group


Hi Katherine -  In the paragraph below, I've read your sentence beginning:
"As the market is always looking forward........."
Are you saying that even a fundamentally strong stock can become technically
weak?  If so, I understand.  But if you're saying weak technical behavior
somehow is an indication of weak fundies ahead, you lost me.  The only link
I can see there is if some big investors are better at foreseeing lower
future earning trends and start selling.

 Rolf

P.S. I liked the reading-etiquette-at-espresso-shop lesson!

> I think one of the most important things I learned from O'Neil was not
that
> fundamentals matter, as that has always been the case and is important to
> the biggest of gurus such as Buffett, but that *technicals* matter as
well.
> As the market is always forward looking, the technicals will tell the tale
> of the stock before the fundamentals (which lag in reporting) reflect what
> is going on. That's how it was easy to see that stocks such as QCOM, YHOO,
> AOL, etc. were rolling over and falling apart in early 2000, even as their
> recent financial reports showed excellent results. The simplest way to
read
> the market signals then, is to read the action of the leading stocks. When
> they begin to act in tandem, that tells you collectively of the general
> market health.
>



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