Re: [CANSLIM] Break outs or pullbacks

From: Davellil5@aol.com
Subject: Re: [CANSLIM] Break outs or pullbacks
Date: Fri, 11 Jul 2003 08:26:29 EDT

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Re:  All the email about "Breakouts or Pullbacks".

According to O'Neil's research, 6 out of ten stocks that break out of 
"good-quality" bases (with good Company performance and/or prospects) rise.  The 
other four drop below the 7% fail-safe rule.  So, if one sells the 4 at or around 
7% loss and rides the other 6, he makes money.  But those are long-term odds 
under a variety of market conditions.

Suppose we're in a market where 8 out of 10 stocks suffer a correction in 
excess of 7%, instead of only 4.  Then, if one keeps buying on breakouts, he 
loses.

I haven't kept a statistical record, but believe, from much observatioon, 
that in the present rising (but still spooky) market, the number of stocks that 
correct after breakout is closer to 8 out of 10 than 4 out of 10.

If that's right, then doesn't it make sense not to buy on a breakout, but 
wait for the correction and buy on signs of recovery therefrom (while this 
behavior persists).

In these emails, some have called such behavior the "IBD curse", i.e., 
smart-alecs taking advantage of CANSLIM-ers, buying into handles and selling on 
breakout.  Whether it's that or just investors taking profit quickly, why follow 
O'Neil's general rule blindly instead of adapting it to investors' behavior 
under current market conditions?

If one waits for initial recovery from post-breakout correction to buy a good 
CANSLIM stock, he may indeed miss some (the 2 out of 10) that keep rising 
after breakout even in these times.  So what -- other fish in the sea!

Or maybe, after a flat base or very shallow saucer, one should buy at 
breakout -- even in this market -- because investors in such stocks haven't bought at 
much lower prices on the right wall of a cup or "W", and therefore are less 
likely to sell off.
Observation would reveal if that's a sensible exception to the "Don't buy on 
breakout rule" for now.

Should we CANSLIM-ers be developing adaptations of WON rules like this, when 
market behavior so dictates?  

What have y'all observed along these lines?  What do you think?

Regards, Dave



Any thoughts from others on this line of thinking.





Just because we have ageberal rule, doesn't mean that

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