Re: [CANSLIM] short selling

From: "DMC197807" <dmc197807@comcast.net>
Subject: Re: [CANSLIM] short selling
Date: Mon, 11 Aug 2003 05:03:28 -0700
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Katherine,

Good notes on short selling.  I'll talk about failed tops in a minute, but I
thought your note on which elements of Milscan might apply to discovering
shorts very informative.  You may be right, that after determining M and
taking a view on relative strength, there's not much more that Milscan can
offer.

However, this whole exercise (of canslim) in the first instance seems to be
a scanning and screening exercise, unless you have your screening done for
you by a paid service.  It's a process of winnowing down 8,000 names to
maybe 20 or 30 charts that you can further winnow down to 2 or 3 to really
look at.  At that point it's all the art of the chart.  It's all a voyage to
become a better investor/speculator, and anything that accelerates and
clarifies that process is very very valuable, imho.

When I just did a quick check through my scans of looking for weak relative
strength stocks (with a coupla more criteria) I only narrowed the universe
to 1200 stocks.  By massaging the canslim stuff, however, the universe can
shrink to the 20 or 30 charts that might be reviewable in a reasonable time
period.

In order to review charts, one needs a system for generating a reasonable
number of charts to look at.

As I have said from the beginning and each time I write on this subject, its
best use for many here may be purely educational, in the sense that focusing
very hard on where the market is and how to look at something like canslim
not as doctrine or dogma but as a workable machine will make you a better
investor in all markets, more sensitive to the what makes a good market good
and a bad market bad.  This is a lifelong study, not just a quick study of
the XYZ system in a few hours.  Specifically, if you can set up scans for
canslim longs and "canslim" shorts and in bull markets your scans produce 40
long charts a day to look at and only 12 shorts, and the opposite in
correcting markets, then your scans themselves become proprietary indicators
of market direction, perhaps ahead of the crowd.

For example, I have very simple scans which show how many stocks are testing
the upper Bollinger and how many the lower Bollinger.   On Friday the bottom
testers outnumbered the top testers by 3:1.  A day earlier they outnumbered
the top testers by 6:1.

Tops, failed and otherwise.  Just as the Japanese candlesticks serve as
excellent visual clues and mnemonic devices for recognizing patterns, the
variety of names for topping patterns (head n shoulders, double top, triple
top, horn top) etc. can help you focus, but not without giving you a false
sense of certainty in certain instances (why, oh why, did that H&S top just
keep going higher?).  To me, in my simplistic approach, a failed top usually
has to do with some bumps and some crosses.

The bumps, or humps, are the places where the priceline has tried to
continue on its trend and failed.  If you have 3 of these with the middle
one highest, then you have a head and shoulders; if you have only 2 of
relatively equal size, you have a double top, but it scarcely matters, does
it?

The crosses occur when 1) the priceline crosses down through a trendline, 2)
the priceline crosses down through support (from previous resistance) and 3)
the priceline crosses down through an important moving average (let's take
the 50 ema).

Once you have something recognizable with those two phenomena, you have
something you can apply your money management and trading skills to.

Pricelines, trendlines, support and moving averages--those are the first
things I'd look at, and then my favorite, volume.

DMC


- ----- Original Message -----
From: "Katherine Malm" <kmalm@earthlink.net>
To: <canslim@lists.xmission.com>
Sent: Monday, August 11, 2003 4:08 AM
Subject: RE: [CANSLIM] short selling (WEBX)


> Hi Harold (and all),
>
> Let's do this for the sake of discussion on the subject. Instead of me
> simply listing how one (or I) would go about screening for failed tops,
let
> me ask of the group a preliminary question:
>
> What does a stock look like technically when it is *at* a top?
>
> Add your thoughts....everything that you know about the technicals of a
> stock that may be at its peak. Again, the underlying assumption is that
for
> the purposes of screening, fundamentals do not matter. These signals are
all
> technical.
>
> After that discussion is exhausted, then I'll ask a follow-on question.
>
> Katherine
>
> -----Original Message-----
> From: owner-canslim@lists.xmission.com
> [mailto:owner-canslim@lists.xmission.com]On Behalf Of Harold Josephson
> Sent: Monday, August 11, 2003 1:34 AM
> To: canslim@lists.xmission.com
> Subject: RE: [CANSLIM] short selling (WEBX)
>
>
> Hi Katherine,
>
> How does one screen for "failed tops"?
>
> Thanks,
>
> Harold
>
> Harold Josephson
> hj@hjosephson.com
>
> -----Original Message-----
> From: owner-canslim@lists.xmission.com
> [mailto:owner-canslim@lists.xmission.com] On Behalf Of Katherine Malm
> Sent: Sunday, August 10, 2003 7:48 PM
> To: canslim@lists.xmission.com
> Subject: RE: [CANSLIM] short selling (WEBX)
>
> Hi Tomas,
>
> I think you've made a good point in saying "may be that you are using the
> wrong tool (CS) for the job (shorting)."
>
> Break CANSLIM into its component parts and you can take one or two of them
> to find short candidates, but CANSLIM is what it is because it represents
a
> collective set of criteria for finding fundamentally attractive stocks at
> the right time for purchasing long positions.
>
> When it comes to shorting, there's only one thing that matters to
> me....technicals and a market that's heading South. The only thing
"CANSLIM"
> about that is that I'll use the RSRank to help me find candidates. I do
two
> things:
>
> (1) Look for failed tops (high RS), a subsequent rise that falls short of
> that failed top, and a continuation move down. Bingo, short candidate.
> (2) Look for lousy stocks that are in downtrends (low RS) that rise on low
> volume to the downtrend line and then make a continuation move down.
Bingo,
> short candidate number 2.
>
> I could care less what the fundamentals were in either case, good or bad,
> because they don't have influence in the short term. That is, the price
> action of the stock in the short term (which a shorting methodology
> represents) is all that matters. The move isn't over a significant enough
> period for fundamentals to affect the price action.
>
> All in all, IMHO, trying to make a complex shorting methodology based on
any
> of the letters in CANSLIM other than maybe I or M is a lot of unnecessary
> complexity for very little payback.
>
> Best resources on shorting: Dave Landry's "On Swing Trading" and Stan
> Weinstein's "Secrets for Profiting in Bull and Bear Markets." Keep it
> simple.
>
> Katherine
>
> -----Original Message-----
> From: owner-canslim@lists.xmission.com
> [mailto:owner-canslim@lists.xmission.com]On Behalf Of Tomas
> Sent: Sunday, August 10, 2003 8:35 PM
> To: canslim@lists.xmission.com
> Subject: Re: [CANSLIM] short selling (WEBX)
>
>
> Just want to put my two bits in.  I currently do not
> short or plan to do it until I am comfortable with CS
> long (maybe another year).  However, I would not mind
> at all if there is discussions on this mailing list
> about shorting leverage/using CS information.
>
> Having said that, I am not sure if you can use any CS
> information to implement a short strategy.  It may be
> that you are using the wrong tool (CS) for the job
> (shorting).  Or maybe not.  I always try to have an
> open mind.
>
>
> Regards,
> tomas
>
> --- Fanus <fanus13@yahoo.com> wrote:
> > Rolf
> >
> > Yes, WON spent about 3 pages on short selling in his
> > book of about 270 pages. And in these three pages he
> > showed two chart patterns and doesn't mention any of
> > the CANSLIM attributes, or reverse of them for
> > shorting.  HTTMIS mentioned lots of other things
> > also,
> > but this isn't a group to discuss HTTMIS. It is a
> > group to discuss CANSLIM.
> >
> > Just because he mentioned short selling in the book,
> > doesn't make it CANSLIM. He also mentioned
> > daytrading
> > and swingtrading in his book. Also not CANSLIM. If
> > you
> > decide to use reverse CANSLIM criteria to pick
> > shorts
> > then it is fine.  But this doesn't make it CANSLIM
> > and
> > is not mentioned by WON at all as shorting criteria.
> >
> > Any rules you use for shorting is your rules and not
> > WON's rules for CANSLIM.
> >
> > To use the criteria below, where in CANSLIM, or
> > HTTMIS
> > for that matter, is the "ANI" criteria mentioned as
> > valid shorting criteria?
> >
> > If you want to learn more about selling short, why
> > not
> > find a discussion group which main goal is to
> > discuss
> > shorting methods and criteria?  I sell short stocks
> > too and I am not against shorting. I am just against
> > discussing it out of place.
> >
> > Best Regards
> > - Fanus
> >
> > --- Rolf Hertenstein <rolfh@mindspring.com> wrote:
> > > ----- Original Message -----
> > > From: "Fanus" <fanus13@yahoo.com>
> > >
> > > > CANLSIM is a long strategy and according to the
> > > rules,
> > > > you get out if you are in a bear market.
> > > > I think this type of discussions are
> > > > better suited for a different discussion group.
> > >
> > > I disagree.  Though WON spends almost all of his
> > > HTMMIS pages on long
> > > techniques, he does discuss short selling in
> > > correcting or beginning bear
> > > markets.  He even gives a couple of chart pattern
> > > examples, like the Head
> > > and Shoulders Top.  I would welcome any discussion
> > > here from the more
> > > experienced members on their short techniques.  If
> > > we are (or even if we
> > > aren't) at the beginning of a multi-year, mostly
> > > sideways market, with
> > > occassional bull runs, seems like effective
> > shorting
> > > could really help
> > > overall returns.
> > >
> > > Some specific thoughts on DMC's post (see below):
> > > A (annual earnings): Seems like a change in
> > earnings
> > > (for the worse) would
> > > be more important a specific number like 15%.
> > > N (new something): My two thoughts are 1. a new
> > > product that *doesn't* live
> > > up to expectations, or 2. new 52-week low.
> > > I (institutional): If there are large
> > institutional
> > > positions, and they
> > > begin to dumpp the stock, might this not drive the
> > > price more aggressively
> > > downward?
> > >
> > >  Rolf
> > >
> > > >
> > > > --- DMC197807 <dmc197807@comcast.net> wrote:
> > > > > P.S. [prescript]:  I can't see any reason to
> > > > > establish (or keep) a long
> > > > > position on WEBX here.  Too much risk for me.
> > > > >
> > > > > Mark,
> > > > >
> > > > > Welcome to the thread.  I don't have any
> > problem
> > > > > with you posting your
> > > > > website location here; it looked pretty good
> > to
> > > me.
> > > > >
> > > > > On the subject of using canslim to find
> > > breakdown
> > > > > rather than breakout
> > > > > candidates, I think that's a good idea.  I'm
> > not
> > > > > sure how we properly tweak
> > > > > the criteria, but I think it's an excellent
> > > topic
> > > > > for education here.  Why?
> > > > > Because the M in Milscan is very, very
> > > precarious
> > > > > here and I think shorts
> > > > > and puts are going to smash longs and calls
> > over
> > > the
> > > > > next several weeks.  I
> > > > > don't see a lot more upside to the market at
> > > this
> > > > > point.  Just pulling up an
> > > > > SPX chart shows a very very tired market, and
> > > the
> > > > > path of least resistance
> > > > > looks to be southeast-, and not northeastward
> > > bound.
> > > > >
> > > > > With that in mind, how would be alter CANSLIM
> > to
> > > > > look for breakdowns?  [I'll
> > > > > put commentary in brackets for breakdown]
> > > > >
> > > > > C = Current quarterly earnings per share
> > (should
> > > > > show a major percentage
> > > > > increase compared to the prior year's same
> > > quarter)
> > > > > [Here I think you take
> > > > > all earnings up to, say 10% positive.  Why?
> > > What we
> > > > > are looking for are
> > > > > stocks which have risen with the tide in spite
> > > of
> > > > > lukewarm or poor earnings,
> > > > > but earnings up to 30% seem too robust to
> > > produce a
> > > > > good short.]
> > > > >
> > > > > A = Annual earnings (the company should be
> > > > > experiencing meaningful growth
> > > > > over the past five years) [Perhaps the cap on
> > > annual
> > > > > earnings growth should
> > > > > be 15%??]
> > > > >
> > > > > N = New products, new management, new high
> > > prices [I
> > > > > don't see how to apply
> > > > > this one; I don't want to exclude new high
> > > prices,
> > > > > because we're looking for
> > > > > overvalued stocks.  Other ideas?]
> > > > >
> > > > > S = Supply and demand (small capitalization
> > > stocks
> > > > > with high trading volume)
> > > > > [Here, having large cap elephants could be a
> > > great
> > > > > idea
> > > > >
> > > > > L = Leader in the industry, not a laggard
> > [here,
> > > use
> > > > > a relative strength
> > > > > rating of 60 or below?]
> > > > >
> > > > > I = Institutional sponsorship (a little goes a
> > > long
> > > > > way) [Hmmmm.  Do we want
> > > > > high institutional ownership, or is this
> > factor
> > > one
> > > > > to be left out
> > > > >
> > > > > M = Market direction (should be headed up).
> > > [This
> > > > > one goes first.  For me,
> > > > > the market is facing a lot more easy downside
> > > right
> > > > > here than upside.
> > > > > Chances of a SPX in the 600, 700, 800 range in
> > > the
> > > > > next 3-4 months is much
> > > > > greater, to me, than a SPX move to 1100, 1200,
> > > > > 1300.]
> > > > >
> > > > > Now comes the difficulty of establishing a
> > > pivot,
> > > > > and selling at the
> > > > > breakdown of that point.
> > > > >
> > > > >
> > > > >
> >
> === message truncated ===
>
>
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