RE: [CANSLIM] Low Volume Pullback Below Pivot

From: "Katherine Malm" <kmalm@earthlink.net>
Subject: RE: [CANSLIM] Low Volume Pullback Below Pivot
Date: Fri, 18 Jul 2003 15:26:57 -0500
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Hi Marc,

While 5/30 represents a valid breakout, my original point was that the
stock's low RSRank would have knocked it out of the running as a CANSLIM
candidate. The RSRank on 5/23 where I showed the base setting up was a lowly
(and laggard) 35. By 5/29, the RSRank had increased to a still laggard 61.
While from a technical standpoint, stocks can break out of bases with any
RSRank, one would have to essentially throw out the RSRank as a means of
mining for candidates or be willing to drop quite low into laggard
territory. This would essentially violate the spirit of the methodology
which suggests that one look for outperformance to the market. I'm the first
to admit the the RSRank has all kinds of problems and I always begin mining
far lower than do most CANSLIMers (I start at 60, but like to see it nearer
to 70 by breakout). The problem is, if 61 is OK (as in the BE example, or in
a TALX example I posted recently where the RS was 53 when it made its
original move), then why not 55 or 45 or 35 or 25 or 15? Where do you stop
if you're a CANSLIMer? Short of throwing it out completely, there is no
"right" solution. My original comment then holds, that BE's original
bottoming base prior to the 5/30 breakout would not have presented a valid
CANSLIM entry.

I think the biggest challenge with CANSLIM is to know and understand the
limitations of each indicator and guideline and then decide which *must* be
included in a sound investing methodology. I think that one could easily
argue away just about any or all of the CANSLIM guidelines including the
RSRank requirement because there will always be exceptions. But what we're
left with is a big void, no methodology, no guidelines and no place to
start. That pretty much puts us back at ground zero, reviewing and
considering a purchase of any of 10000 stocks on each and every trading day.
Or worse, it lets us "rationalize" the purchase of an underperforming stock,
only to see it plummet into oblivion. It's easy to look back at a BE example
and say "see, this worked despite the RSRank" and I would happily agree,
however, for evey BE or TALX, there are 30 more like ENE or WCOM.

Katherine

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Marc Deiter
Sent: Friday, July 18, 2003 1:41 PM
To: canslim@lists.xmission.com
Subject: RE: [CANSLIM] Low Volume Pullback Below Pivot


Thanks Katherine.

Why would May 30th not be considered a breakout?  The stock passed
the pivot of 9.23 on 2x average daily volume?  Then during the next 2
weeks the price comes down close to the pivot point before gradually
moving up.

On 5/27 and 5/28 the intra-day high's were above the pivot, but the
closing price was below 9.23.  Does this "dis-qualify" 9.23 as a
pivot point?

Thanks,
Marc


- --- Katherine Malm <kmalm@earthlink.net> wrote:
> Hi Dave & John,
>
> Here's how I see BE's chart. In all cases, the basing formation is
> a
> bottoming base, which requires more interpretive action than do
> bases formed
> after long uptrends.
>
> Here is BE 5/23/03. The problem is not with the base itself, but
> with the
> severely laggard RSRank of 35:
>
> http://www.breakoutwatch.com/katherine/BE052303.JPG
>
> Here is BE 6/23/03. It's continued to climb up and now has a
> non-laggard
> RSRank = 75, but it never had a convincing move above the pivot at
> 10.80
> (set 6/16). That is usually an indication that the stock is still
> building
> the RHS of the base, rising and falling and potentially setting a
> fresh
> pivot.
>
> http://www.breakoutwatch.com/katherine/BE062303.JPG
>
> Here is BE as of today. The lack of a convincing move above the
> previous
> pivot set a fresh pivot at 11.04 (set 7/15/03), but the base itself
> has some
> problems, particularly a lack of convincing volume build up on the
> RHS.
>
> http://www.breakoutwatch.com/katherine/BE071803.JPG
>
> While BE provided entry points closer to its bottom, I don't think
> it's
> provided a comfortable CANSLIM intermediate/term entry point just
> yet.
> Entries on pullbacks would then be a riskier venture, though highly
> do-able.
> If willing to take on the risk, I would look to the general price
> action
> itself to find a pullback entry much closer to the bottom of a
> logical
> support area if entering while the stock's still forming a more
> convincing
> RHS. If the market rolls over, then an entry here makes it easier
> to
> determine if the stock is going to roll over by itself or in
> response to
> generally weak market action.
>
> http://www.breakoutwatch.com/katherine/BEFallZone.JPG
>
> Katherine
>
> -----Original Message-----
> From: owner-canslim@lists.xmission.com
> [mailto:owner-canslim@lists.xmission.com]On Behalf Of
> Davellil5@aol.com
> Sent: Friday, July 18, 2003 8:23 AM
> To: canslim@lists.xmission.com
> Subject: Re: [CANSLIM] Low Volume Pullback Below Pivot
>
>
> What pivot last Tuesday on BE?
>
> Seems to me that BE broke out late April, early May, without
> bothering to
> form a handle.
>
> There has been no secondary base since then that lasted the 7-8
> weeks
> suggested by WON as a minimum.
>
> The question of buying a stock post-breakout should interest
> CANSLIM-ers as
> we so often become aware of a stock only after it has broken out
> and is over
> the 5% "chase-limit" suggested by WON.
>
> DAVE
>
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