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

From: Hong Hsu <honghsu@bellatlantic.net>
Subject: Re: Trailing stops and taking profits (was: RE: [CANSLIM] AAII letter to the editor)
Date: Thu, 17 Jul 2003 13:45:11 -0400

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 >  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.

Katherrine,

   Thanks a lot for helping me.   A additional question.  I thought that 
the liquid of a stock reflects the daily trading volume or total float 
of the stock, not price of the stock.  Am I right?  An example of this 
is LU which is below $2 now, but a lot of liquidity.  

I agree with you completely that some big winners had low price when 
they had their first B/O. Two examples of them are BLUD, CHTT back to 
Jan. 2002.    I even think $10 low price stocks would have higher % gain 
than $80 high price stock.    Does it hold true in general?  

- -Hong




  

Katherine Malm wrote:

>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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