Re: [CANSLIM] Break outs or pullbacks

From: Mike Baudino <mike.baudino@zurichna.com>
Subject: Re: [CANSLIM] Break outs or pullbacks
Date: Fri, 11 Jul 2003 10:45:28 -0500

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Waiting for the breakout to be tested, recover from the test, and rebreak
higher is what investmenthouse.com recommends and it seems to do well for
them.  Granted they look for other plays like tests against the MVA, flat
bases, flying plateau patterns, etc.  But their take is that a break from a
good cup with handle will very likely retest the MVA or the pivot point
again before moving higher, especially if it breaks well initially.

Of course, some never retest so they miss the entry point altogether...


Davellil5@aol.com@lists.xmission.com on 07/11/2003 07:26:29 AM

Please respond to canslim@lists.xmission.com

Sent by:    owner-canslim@lists.xmission.com


To:    canslim@lists.xmission.com
cc:

Subject:    Re: [CANSLIM] Break outs or pullbacks


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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