RE: [CANSLIM] ADVP

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: [CANSLIM] ADVP
Date: Sun, 25 May 2003 07:56:40 -0500
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Hi jans,

Darn...such a tough question for a holiday weekend! :))

First, I'd say that it's rare that these are the only 2 factors I would use
in making a decision as to whether or not to pursue a stock. Even from a
technical perspective, there are more risk-factor clues to consider, such as
the tightness of the ranges on the right side of the base, the quality of
the handle, the number of up weeks on above average volume vs down weeks on
above average volume within the base, the technical condition of this stock
relative to other stocks within the industry, the technical condition of the
industry as a whole, etc. And none of those factors consider the fundamental
condition of the stock or the underlying characteristics of the business
such as competitive advantage, potential business or accounting red flags,
etc.

That said, however, if I were looking at 2 stocks with *all else being
equal*, then I'd always choose the one that is technically most sound. That
means I would choose the one with *both* rising volume on the right side of
the cup *and* a rising RSLine (particuarly if the RSLine is rising to new
highs ahead of the price) over the one with rising volume and a declining
RSLine.

Here's the logic behind the assessment of the first stock being "better":

If the price is rising on the right side of the cup (whether volume is
rising or not) and the RSLine is *falling*, that means this stock is rising
in price at a rate slower than the market as a whole is rising. Translation:
it's lagging the market. Eventually this stock will fall back in RSRank,
because other stocks that are rising faster than the market will show
outperformance relative to this stock and therefore have higher RSRanks. In
short, it means this stock is a laggard, i.e., money is not flowing into it
as quickly as it is flowing into other stocks. I'd much rather pursue a
leading stock, as strong outperformance against both the market as a whole
(RSLine) and relative to all other stocks (RSRank) tends to lead to outsized
gains.

I think the real problem is that without a system that gives one a very
thorough view of all stocks currently setting up in bases and nearing a
breakout, it's easy to "settle" for a flawed stock like this because one
doesn't have an quick and easy way to view all the other (potentially
better) stocks that are also setting up at the same time. It's like choosing
something behind door number one when nobody has let on there is another
door available with more choices to consider.

Katherine

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Spencer48@aol.com
Sent: Saturday, May 24, 2003 9:15 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] ADVP


Katherine:

     Per your last sentence of this E-mail, how would you handle a stock
that
is in an obvious good looking C&H, and whose right side shows price
increasing on good volume-but whose right side also shows that the RS Line
is declining
as the right side builds up to the Handle?

     One or the other (volume or RSL) must be given the the deciding weight.
Which would you choose-and why?

jans


In a message dated 5/24/2003 12:38:09 PM Eastern Daylight Time,
kmalm@earthlink.net writes:

<< What you really want to keep your eye on is a very marked negative
 divergence in the direction of the RSLine relative to the price action in
 the stock.  ...if price is rising on ever decreasing volume, that
divergence
shows a lack of  conviction in the move and raises the likelihood that the
stock will
 correct. That's why you ideally want to see volume *rise* on the right side
 of the cup. >>

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