RE: Trailing stops and taking profits (was: RE: [CANSLIM] AAII letter to the editor)

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: Trailing stops and taking profits (was: RE: [CANSLIM] AAII letter to the editor)
Date: Wed, 16 Jul 2003 11:40:50 -0500

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Hi Hong,

Your question:
"Isn't the Comparative RS just mimic price/volume action?  So it doesn't
give any new info."

Answer:
Absolutely not. First, the comparative RS does not consider volume, just
price. The comparative RS calculation takes the stock's price on any one day
and divides it by the value of the SPX (S&P500 index) on that same day. This
is the reason why the RSLine (comparative RS) does not have a scale. This
ratio is then viewed over time to see how this particular stock is doing
against the market as a whole. For example, you can have a stock rising in
price and still have a declining RSLine. Why? Because the stock is not
rising as quickly as the market. Conversely, you can have  a stock falling
in price and still have a rising RSLine. Why? Because the stock may be
falling at a slower rate than the market is falling. This is a very powerful
tool and I place far more importance on it than the RSRank itself, as it is
not muddied by the weird behavior inherent in ranking systems.

Here's a tutorial on the RSLine you may find helpful:
http://www.breakoutwatch.com/katherine/RSLineTutorial.zip (this is a zipped
MS Word document)

There is some additional information on the RSRank and RSLine in our chart
help file at:
http://www.breakoutwatch.com/html/chart_help.htm

Also be sure to do a search on these subjects at investors.com. I have an
entire folder dedicated to RS and RSLine in my CANSLIM binder, collected
from years' worth of Investor's Corners and Ask Bill columns.

Your question:
"...CMTL was under $10 with 78/93/A+.   It wouldn't convince me to buy it at
that time until the end of May with noticeable volume surge.    How can
 you find a big winner early in general?"

Answer:
Guidelines for mining for CANSLIM stocks are often misused in my opinion. On
prices, WON suggests you stick with more liquid issues that attract
institutional interest, but there is no reason why one cannot dip below
these prices and find perfectly acceptable candidates. However, the less the
liquidity, the more likely you are to be whipsawed with price action. You
have to be very selective about picking very good stocks if you're going to
do this. Next, on RS/EPS/SMR rankings. WON suggests that RS<70 is a laggard
stock, but there is nothing to prevent you from mining for stocks with lower
RSRankings, performing due diligence, and reading the price/volume action to
determine if these are healthy, buyable stocks. I think the IBD does a
disservice to its readers to suggest that one stick to mining for stocks at
RS>=80 or 85, as this is not what WON teaches.  RSRanks jump all over the
map and can change from RS=53 to RS=80 in a matter of days. It's a chunky
measurement, so take it with a grain of salt. The RSLine will often tell you
far more about the stock's relative strength. EPS and SMR are also ranking
tools. I haven't used EPS in years and only give a nod to the SMR ranking,
instead favoring a "preponderance of evidence" look at the raw fundamentals
themselves. I want to know where the stock's strengths and weaknesses are
and evaluate them against the desirable qualities in a CANSLIM/growth
candidate. That takes a bit more work, but doesn't lock you up in the
EPS/SMR  measurement shortcomings. If you choose to use them, just set the
bar lower so that you can get a look-see at possible candidates.

Katherine


- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Hong Hsu
Sent: Wednesday, July 16, 2003 9:18 AM
To: canslim@lists.xmission.com
Subject: Re: Trailing stops and taking profits (was: RE: [CANSLIM] AAII
letter to the editor)


Katherine,

I really appreciate all of your effect.  The explanation with the
example gave me very clear view.   I bought CMTL on 5/27.   Seeing price
drooping continually lead me rethink and ask my initial question.  I
didn't have good sleep two days because of dropping price.

A couple of questions:

Isn't the Comparative RS just mimic price/volume action?  So it doesn't
give any new info.

Secondly because CANSLIM uses EPS rating, back to the end of March, the
CMTL was under $10 with 78/93/A+.   It wouldn't convince me to buy it at
that time until the end of May with noticeable volume surge.    How can
 you find a big winner early in general?

Many thanks,
- -Hong




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