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canslim-digest         Tuesday, June 17 2003         Volume 02 : Number 3374



In this issue:

       RE: [CANSLIM] stop losses and profits
       RE: [CANSLIM] stop losses and profits
       RE: [CANSLIM] fwht pivot

----------------------------------------------------------------------

Date: Tue, 17 Jun 2003 09:50:32 -0500
From: [e-mail]
Subject: RE: [CANSLIM] stop losses and profits

Katherine,

Thanks again, and keep up the excellent work!

When you mentioned not using hard stops, I assume that you are watching the
market closely during the day, but am wondering how you handle a case where
a stock takes a tumble at open, that goes beyond your 7-8% loss, case in
point, GRMN today.  I was stopped out with 11% loss because of the quick
drop, and am now watching to see what happens.  For you, you would be
watching , and my wait until the end of the day to see if you violate your
internal stop losses, but how do you protect yourself from a huge drop that
does not come back up, ie what signs do you look for to exit manually?

Thanks as always

Mike


Mike Niemotka , PE
Sr. Principal Engineer
Baxter Healthcare Corporation
Route 120 & Wilson Road
Round Lake, IL 60073
Tel [phone]
Fax [phone]
[e-mail]



                    "Katherine Malm"
                    <[e-mail]>        To:     [e-mail]
                    Sent by:                     cc:
                    [e-mail]       Subject:     RE: [CANSLIM] stop losses and profits
                    ission.com


                    06/17/2003 09:36 AM
                    Please respond to
                    canslim






Hi Mike,

re: "As a point of clarification, no matter what the market conditions at
breakout, and the strength of the breakout, after 3 weeks you move the
stops to break even, is that correct?"

Yes. Once 3 weeks has passed and the stock is moving past the pivot, you
don't want to take a loss of any kind. If it wanders up during the 3 weeks,
but isn't moving strongly, then you want to give it room to move. For
example, in a weak market, successful BO's aren't necessarily going to
shoot
straight up. However, at the same time you give it breathing room, it
doesn't make sense to allow an 8% loss after having held it for so long.

re: "Also, WON has a "rule" that if a stock rises 20% in the first 3 weeks
of
breakout, you "must" hold it for at least 8 weeks.  If this is the case,
what would happen if the stock drops back down 25% to the point where it
would trigger a 4-5% loss rule?  Does the "hold for 8 weeks" rule supersede
the "don't let a gain of 15-20% turn into a loss rule"?"

What you're referring to is the idea that if a stock rises 20% in the first
3 weeks, then this is a sign of strength in the BO. The rules that I've
outlined refer to the initial stop loss on a position. Once the stock has
risen 20% or more, there's no reason to take a loss. Move stop loss to
breakeven, period. That helps in the case where something rises sharply,
but
then moves back down. By moving stop to breakeven, you protect yourself
from
losing money on something that crashes back to earth. A 20% rise in any
market is significant. If a stock rises that much and then reverses in the
first 3 weeks, that's generally a sign of weakness somewhere along the
line.

At the same time, if a stock has risen 20%, then not only do you move the
stop to breakeven, but you also give it room to prove itself over the first
8 weeks. In other words, you're slightly more tolerant of the price/volume
action *after* the 20% rise if it hits 20% in the first 3 weeks, but never
more tolerant than breakeven.


re: "And finally, is there an easy way to monitor how the number of
breakouts is
changing, and how successful they are? "

Absolutely. I have been working on this during the last couple of years.
You
can see a glimpse of that in a post that I made a couple of weeks ago in
response to jans' question on the leveling off of RSLines in the leaders
(I've included a copy at the end of this post). I showed several charts
that
indicated not only the number of breakouts, but also the cumulative
breakouts and the number of breakouts making rises of 20% or more in their
first 3 weeks. This kind of work is still behind the scenes, but eventually
will be presented at our site for our subscribers. There are 3 issues
related to this kind of info (1) how strong is the market?, (2) how strong
are the breakouts, in general?, (3) if I own a stock, how will the strength
of the BO and the market influence my sell rules? and (4) if I'm interested
in a stock but missed the original BO, is there a benign pullback that will
afford a second chance entry?

Katherine

- -----Original Message-----
From: Katherine Malm [mailto:[e-mail]]
Sent: Tuesday, May 27, 2003 7:22 PM
To: [e-mail]
Subject: RE: Lagging RSLines (was: [CANSLIM] SHFL Breaking Out)


Hi jans,

<snip>

To illustrate this in action, I took all the cup with handle (cwh)
breakouts
for the month prior to and after the follow thru day on 3/17/03. While this
doesn't represent *all* breakouts during the period, it's a very good
barometer, because the cwh pattern is by far the most common intermediate
term pattern. I chose the 2 months around the FTD so that I could  have a
steady state group of "leaders" and then measure their technical condition
against the market as a whole between the beginning of that period and
5/23/03 (which is when I prepared the stats). For the period between
2/17/03
and 4/17/03, there were 71 distinct stocks that broke out. I used the same
methodology we use for measuring the industry scores for use in assigining
industry rank and then measured that group score from 2/17 through 5/23.
The
score is derived by assigning points to each stock based on the RSRank, %
off 52 week high, price relative to the 50dMA, price relative to the
200dMA,
an 50 realtive to 200dMA. (For a more in depth description, see
http://www.breakoutwatch.com/industry_methodology.htm )

Here is a graph of the score for this group of leaders against the market
as
a whole:
http://www.cwhcharts.com/katherine/cwhBreakoutsGroupA.jpg

Notice that while the group as a whole has pulled back in score ever so
slightly, it is still at a very high value of 90 out of a possible 100.
Notice also that the market as whole has been very strong during this
period, rising very steadily. What that translates into is a pause in the
action of the leaders that is very mild against a strengthening market.
That
would mean that the RSLines would then fall back a bit.

Here's another view point to demonstrate the strength of the market during
that same period:

First is the total number of cwh breakouts by week:
http://www.cwhcharts.com/katherine/cwhBreakoutsByWk.jpg
Notice the dearth of breakouts in mid-2002 and the more recent increase.

You can also see the increase in the total number of cwh breakouts by
looking at the cumulative number since the 10/10/2 market low:
http://www.cwhcharts.com/katherine/cwhBreakoutsCumul.jpg
We're now up to more than 300 cumulative breakouts and the rate of
breakouts
per week has accelerated since mid March when we posted the FTD.

Here's another viewpoint to show the cwh breakouts action. This is a
rolling
total. At any point in time, the number you see shows the total number of
breakouts over the prior 13 week period:
http://www.cwhcharts.com/katherine/cwhBreakoutsRolling13wks.jpg
Notice how the cumulative total rose into late 2002, then churned a bit
until about 2/21/3. That's about 1 month prior to the FTD 3/17/3 and
corresponds to the beginning of the period I selected for highlighting the
"leaders" in the rally.

Now, one last view to show the strength of the breakouts and the market as
a
whole during the latest 13 week period. I've taken three 13 week periods
and
measured the action of the cwh breakouts during each of those periods. The
chart shows the price action of the breakouts 3 weeks after they originally
broke out. I used 3 weeks, because WON often suggests that we look to see
not only *how many* stocks are setting up and breaking out, but also *how
strong* those breakouts are in the first few weeks of their breakout:
http://www.cwhcharts.com/katherine/PctIncAfterBO.JPG

Notice that for the period 11/25/02 through 2/21/03 that only 1.3% of
breakouts were up >=20% and only about 16% were up 5% or more in the first
3
weeks. The number of failures (down more than 8% in the first 3 weeks) was
also very high, 25% of all the breakouts. However, in the latest 13 week
period (2/24/03 through 5/23/03), 12.7% of the breakouts during the period
are up >=20%, and 47% are up >=5%. At the same time, failures are down
considerably at 7.8% of the total breakouts during the period. Looking at
the performance to date of all breakouts during the latest 13 week period,
57.2% are now up >=5% since their breakout and only 6% have failed.

Bottom line.... the leaders are still strong (average technical score for
the group 90 out of 100) + market continues to serve up more breakouts +
market continues to serve up successful breakouts and shows a small % of
failed breakouts = RSLines of the leaders will fall back a bit.

That said, this is a record of the market as it is today. If the number of
breakouts begins to wane, if the price action of breakouts falls back, if
breakouts begin to fail, and/or if the price/volume action in the indexes
begins to show churning and/or distribution, then those would be signs the
rally is over. By itself, a slight pullback in the RSLines of the leaders
does not, by itself indicate problems.

Katherine

- -----Original Message-----
From: [e-mail]
[mailto:[e-mail]]On Behalf Of
[e-mail]
Sent: Tuesday, June 17, 2003 7:42 AM
To: [e-mail]
Subject: RE: [CANSLIM] stop losses and profits



Katherine,

As usual, an excellent response. I appreciate how you have outlined
everything to include the general market into the equation.

As a point of clarification, no matter what the market conditions at
breakout, and the strength of the breakout, after 3 weeks you move the
stops to break even, is that correct?



And finally, is there an easy way to monitor how the number of breakouts is
changing, and how successful they are?  I am thinking that one way would be
to plot the number of confirmed breakouts from your site vs each day to see
if there is a trend, and then to also use the breakout page to see the
results after 3 weeks.

Thanks again

Mike





Mike Niemotka , PE
Sr. Principal Engineer
Baxter Healthcare Corporation
Route 120 & Wilson Road
Round Lake, IL 60073
Tel [phone]
Fax [phone]
[e-mail]



                    "Katherine Malm"
                    <[e-mail]>        To:
[e-mail]
                    Sent by:                     cc:
                    [e-mail]       Subject:     RE: [CANSLIM]
stop losses and profits
                    ission.com


                    06/17/2003 08:02 AM
                    Please respond to
                    canslim






Hi Mike,

I had to stretch my brain cells to remember back to this discussion from
last year!

Refining and redefining my sell rules has been a number one priority for me
since early 2000, so you'll probably understand why I've modified these
since last year. Part of what makes sell rules more complex is that the
market will influence how breakouts behave, and therefore how much
"tolerance" one would give a stock after the breakout. Last August, when
this note was written, we were deep into the Bear. Very few stocks were
breaking out and for those that were, the action was always very tentative.
This "low tolerance" point of view was part of the responsiveness to market
conditions.

Now, I've developed a more sophisticated means of monitoring breakouts in
addition to the general market health warnings that we can see from simply
looking at the price/volume chart of the index averages, so the sell rules
can be specific, but still adaptable to strong vs weak markets.

From a market perspective, the initial tolerance is affecting by asking if
this is a "strong" or "weak" market:
(1) Is the market in a confirmed rally?
(2) Are the number of breakouts increasing?
(3) What percentage of the breakouts are up >=20% within the first 3 weeks
after their breakout?

For the stock itself, the intial tolerance is affected by asking if this
was
a "strong" or "weak" breakout:
(1) Was the breakout on strong volume?
(2) If the breakout was on strong volume, did it close above or slightly
below the pivot?
(3) Did the breakout follow through (i.e., show the ability to continue to
move up, however small, after the breakout)?
(4) Was the volume on the breakout week higher than the previous week?

In simple terms you can then have 4 combinations:
(1) Strong Market, Strong BO (highest tolerance)
(2) Strong Market, Weak BO (midrange tolerance)
(3) Weak Market, Strong BO (midrange tolerance)
(4) Weak Market, Weak BO  (lowest tolerance)

The initial sell stop is set either at 8-10% below purchase (high
tolerance), 4-5% below purchase (midrange tolerance) or at breakeven (low
tolerance). You'll notice I'm more tolerant on the initial stop loss than
WON, as some stocks exhibit a particular volatility pattern that would
force
you out unnecessarily.

I also do not use hard stops unless I'm out of town and can't review my
holdings. I use end of day prices to determine these points. Often, when a
stock has a wide-bar range, it kicks in a sell stop unneccesarily. If the
stock is weakening, hitting the stop intraday, but doesn't close below the
stop, I will watch action on the next day and determine whether the stock
is
bouncing back on volume (showing strength) or wandering up on low volume
(showing continued weakness).

Regardless of market strength, after one of the following, the initial stop
is moved to breakeven:
(1) For high liquidity stocks (>=100K shares), did it rise >=20% after the
BO?
(2) For low liquidity stocks (<100K shares), did it rise >=15% after BO?
(3) Has 3 weeks passed since the BO?


Katherine



- -----Original Message-----
From: [e-mail]
[mailto:[e-mail]]On Behalf Of
[e-mail]
Sent: Monday, June 16, 2003 11:25 AM
To: [e-mail]
Subject: Re: [CANSLIM] stop losses and profits



Katherine,

A while back you shared the below sell rules with me, and I was wondering
if you could provide a clarification on item #2.  After a stock has been
held 2 weeks, you stated that you move your stop loss to break even, and I
was wondering if that was independent of the action of the stock. In
particular, if you buy a stock that breaks out, and in the first couple of
weeks moves down a little ( -1 to -3% from pivot), but then moves back up
into a + terrritory, do you still move to break even, or do you keep the
7-8% stop loss in place, and if so, for how long?

Thanks

Mike





                    "Katherine Malm"
                    <[e-mail]>         To:
[e-mail]
                    Sent by:                      cc:
                    [e-mail]        Subject:     Re:
[CANSLIM]
stop losses and profits
                    ission.com


                    08/20/2002 02:41 PM
                    Please respond to
                    canslim






HI Mike,

I know I talked a bit in circles on this topic and it may have been because
I didn't read your question/response closely enough.

Here's the summary of my thinking on this issue:

I separate my sell rules into several distinct time periods, and the rules
vary a bit depending on what the stock does within a certain amount of
time.
All of this also assumes a healthy "M", of course:

1. Time period: 1st 2 wks after breakout: If the stock rises, regardless of
the percentage, then falls back on low volume, the 8% rule still holds. I
do
not add to a position unless the stock falls back near the pivot on *low
volume.* I am skeptical and keep a sharp eye if it drops below the pivot,
but it's not uncommon for this to happen, especially in iffy markets, and
especially in the first week. That's what the 8% rule is there for, it
gives
you some leeway, but there are times where it goes up quickly and then
falls
back and you're stuck with the 8% loss. When the volume picks up to the
downside, I'll move the stop to breakeven. If the volume is severe, I'll be
out before it hits that point.

2. Once the stock passes the 2 wk mark and up to the 8th week: I've moved
my
stop to breakeven. That way, I don't have to take a loss in a stock that's
risen and stayed above its pivot.

3. Once the 8 wk mark passes, new sell rules kick in.

On something like NCEN, in particular, you were fighting against tide to
begin with, so there was already extra risk in your purchase. The market
was
in a clear downtrend and had shown no signs of follow-thru. Second warning
was the churning it put in on 6/27, 6/28. Lots of volume and very little
price progress--yellow flag. That makes 2 because the poor market is a
yellow flag to begin with. Next warning: a big tail down on 7/1, though the
volume was relatively benign and didn't qualify as a "distribution" day.
Last warning to head for the exits: 7/2. A big volume day and big tail
down.
That's 4 yellow flags in a row. Time to exit if you haven't already done
so.
If it wasn't clear on 7/2, it was screaming for attention on 7/5--an up day
on very low volume. Assuming you'd missed all the signals, then you still
would be saved by a breakeven stop if you'd entered on the breakout 6/19.

All in all, the 8% stop is useful, but far less important than all the
other
sell rules after a stock breaks out.

Katherine


- ----- Original Message -----
From: <[e-mail]>
To: <[e-mail]>
Sent: Tuesday, August 20, 2002 2:19 PM
Subject: Re: [CANSLIM] stop losses and profits


|
| Katherine,
|
| I actually followed this thinking and watched a nice profit (15%) in NCEN
| turn into an 8% loss as the bottom dropped out.  I think it has made me
| make a modification to stop at break even if I end up at 15% gain, at
least
| until M has be proven to be turned.  I came up with this based on
assuming
| a stock that breaks out would "normally" be expected to rise about 25-30%
| before re-basing, so if never gets up by that amount from my buy point,
| then I should exit sooner rather than later...
|
|
| Mike Niemotka , PE
| Sr. Principal Engineer
| Baxter Healthcare Corporation
| Route 120 & Wilson Road
| Round Lake, IL 60073
| Tel [phone]
| Fax [phone]
| [e-mail]
|
|
|
|                     "Katherine Malm"
|                     <[e-mail]>         To:
[e-mail]
|                     Sent by:                      cc:
|                     [e-mail]        Subject:     Re:
[CANSLIM] stop losses and profits
|                     ission.com
|
|
|                     08/16/2002 05:01 PM
|                     Please respond to
|                     canslim
|
|
|
|
|
|
| Oops...I realize now I misread your question.
|
| I would *hold on* up to 8% below buy price, but if the stock comes back
and
| *kisses* the pivot, then I would buy more. I'm not inclined to buy more
| when the stock drops *below* the pivot, unless it shows strong volume
| pushing it back up to the pivot and beyond. Now I think I've confused
even
| myself!
|
| This is the way I think of it  "Kiss the pivot, second chance to buy
| more---Hit the pivot, yellow flag"
|
| Katherine
|
| ----- Original Message -----
| From: "Katherine Malm" <[e-mail]>
| To: <[e-mail]>
| Sent: Friday, August 16, 2002 4:55 PM
| Subject: Re: [CANSLIM] stop losses and profits
|
| | Hi Mike,
| |
| | 8% standard stop loss, though I don't see this happen too often when
the
| | market is healthy.
| |
| | Katherine
| |
| | ----- Original Message -----
| | From: <[e-mail]>
| | To: <[e-mail]>
| | Sent: Friday, August 16, 2002 2:54 PM
| | Subject: Re: [CANSLIM] stop losses and profits
| |
| |
| | |
| | | Katherine,
| | |
| | | I knew I could count on you for a good answer.  As a follow up to
your
| | | answer #4, if you made 10-15% in one week, how low would you allow
the
| | | stock to drop on low volume and still buy more, as opposed to selling
| out?
| | |
| | | Put another way, if it ran up 15% in a week, would you allow it to go
| | below
| | | your original buy point, even if it was at low volume?
| | |
| | |
| | | Have a great weekend everyone!
| | |
| | | Mike
| | |
| | | Mike Niemotka , PE
| | | Sr. Principal Engineer
| | | Baxter Healthcare Corporation
| | | Route 120 & Wilson Road
| | | Round Lake, IL 60073
| | | Tel [phone]
| | | Fax [phone]
| | | [e-mail]
| | |
| | |
| | |
| | |                     "Katherine Malm"
| | |                     <[e-mail]>         To:
| | [e-mail]
| | |                     Sent by:                      cc:
| | |                     [e-mail]        Subject:     Re:
| | [CANSLIM] stop losses and profits
| | |                     ission.com
| | |
| | |
| | |                     08/16/2002 02:31 PM
| | |                     Please respond to
| | |                     canslim
| | |
| | |
| | |
| | |
| | |
| | |
| | | Hi Nancy,
| | |
| | | Let me try and clear up some of your confusion:
| | |
| | | 1. A stock's "rise" does not occur *in* a base, but *between* bases.
| While
| | | the price will fluctuate up and down within the base itself, the
amount
| of
| | | fluctuation will vary depending on the severity of correction and the
| time
| | | it takes to form the area of consolidation. The stock is essentially
| | | *absorbing* the gains of its previous advance.
| | |
| | | 2. When you purchase a stock, you will always purchase it as it
*breaks
| | | out*
| | | of that base. This preferred buy point is referred to as the "pivot"
| and
| | is
| | | again defined by the pattern that the base forms.
| | |
| | | 4. When a stock begins a healthy rising pattern after it breaks out,
it
| | can
| | | rise *any* amount before it consolidates (bases) again. There is no
| hard
| | | and
| | | fast rule as to how much it will rise before basing, though WON
| suggests
| | | that if it is >=25%, the next base would then be considered a "new
| stage
| | | base." This is only important in that his studies show that most
stocks
| | | can't muster the oomph to keep going after they've reached the 3rd or
| 4th
| | | stage base.
| | |
| | | 3. Mike's question about a sell rule is not dependent on *which* base
| in
| | | the
| | | base count we are evaluating. A base is a base. If the stock breaks
out
| as
| | | it should and begins to rise, how are you going to handle selling it
| | | when/if
| | | the time comes?
| | |
| | | 4. WON suggests that, if you buy correctly at the pivot (or no more
| than
| | 5%
| | | above it), that you should never have to suffer a loss of more than
8%.
| | | This
| | | is because, in his studies, he has found that a healthy stock never
| falls
| | | more than 8% below the pivot before continuing a healthy advance.
| | |
| | | 5. Mike's question, specifically, was "if a stock breaks out of a
base,
| | | then
| | | rises 10-15%, then falls back, where do you place your sell stop? 8%
| below
| | | your buy price or something other than that?" In other words, should
| you
| | be
| | | willing to accept *any* loss if a stock has managed to rise 10-15% in
6
| | | wks,
| | | then falls back to where you bought it. My vote is, if it takes 6 wks
| to
| | | rise and then erases the entire advance, I don't want to take an 8%
| loss.
| | | If
| | | it rose 10-15% in *one* week and then fell back on low volume, I'd
look
| at
| | | that as "normal" and might consider it a second chance to *buy* more.
| | |
| | | Katherine
| | |
| | |
| | | ----- Original Message -----
| | | From: "NANCY POLCARO" <[e-mail]>
| | | To: <[e-mail]>
| | | Sent: Friday, August 16, 2002 1:47 PM
| | | Subject: Re: [CANSLIM] stop losses and profits
| | |
| | |
| | | | Katherine-let me see if I am following correctly please.  My
question
| is
| | | | that previously I understood that after the third rise in a base
| | | formation
| | | a
| | | | stock may correct by dropping below the previous base and then
| starting
| | | up
| | | | again if all is well with the stock.  Then the bases start to be
| | | recounted
| | | | again.  In this case, if you just bought in during the third rise
in
| the
| | | | base, which from my understanding would probably go up between
| 15%(Mikes
| | | | figure) and 25%( the amount of each rise in a base of a healthy
| stock)
| | | you
| | | | would sell(not you personally but someone with my amount of
| experience
| | or
| | | | the like) before the 8% drop, to protect your gain.  Then follow
the
| | | stock
| | | | and watch for a buy in again at some point depending on how the
stock
| | | acts
| | | | from this point on?  Is that close to correct ???  Thanks for your
| | | thoughts
| | | | Nancy
| | | |
| | | |
| | | | >From: "Katherine Malm" <[e-mail]>
| | | | >Reply-To: [e-mail]
| | | | >To: <[e-mail]>
| | | | >Subject: Re: [CANSLIM] stop losses and profits
| | | | >Date: Fri, 16 Aug 2002 13:09:30 -0500
| | | | >
| | | | >HI Mike,
| | | | >
| | | | >I think you'll get a hundred different answers on this one, so
I'll
| | just
| | | | >answer from my personal point of view.
| | | | >
| | | | >If a stock breaks out of a well-formed base on volume, then takes
6
| | | weeks
| | | | >to
| | | | >rise 10 or 15 percent, then I sure wouldn't want to risk 8% loss
at
| | that
| | | | >point, even if it were falling back "normally" as you suggest. To
me
| | | that
| | | | >means that no sell signals were triggered on the way up, and that
| the
| | | | >general pattern included up days on higher volume than down days,
| | | support
| | | | >at
| | | | >the 50 day moving average, etc. My personal preference, however,
| would
| | | be
| | | | >to
| | | | >move my stop to breakeven or slightly below (3-4% max, depending
on
| | | market
| | | | >conditions) if the stock had risen like this.
| | | | >
| | | | >Katherine
| | | | >
| | | | >
| | | | >----- Original Message -----
| | | | >From: <[e-mail]>
| | | | >To: <[e-mail]>
| | | | >Sent: Friday, August 16, 2002 9:17 AM
| | | | >Subject: [CANSLIM] stop losses and profits
| | | | >
| | | | >
| | | | >| Group,
| | | | >|
| | | | >| In reading WON, he makes a statement that you should never let a
| | stock
| | | in
| | | | >| which you are up 10-15% turn into a loss, but I was wondering
you
| | have
| | | | >| interpreted that along with the sell at no more than an 8% loss
| rule.
| | | | >|
| | | | >| Say you buy a stock, at a breakout, and it rises 10-15% over a
few
| | (6+
| | | | >| weeks), and then is started to correct....Do you sell at you
break
| | | even
| | | | >| point, or do you allow it to go to your 8% loss point before
| selling?
| | | | >This
| | | | >| is assuming that the stock is NOT giving any strong sell
signals,
| but
| | | | >| appears to be pulling back "normally".
| | | | >|
| | | | >| Thanks
| | | | >|
| | | | >| Mike Niemotka , PE
| | | | >| Sr. Principal Engineer
| | | | >| Baxter Healthcare Corporation
| | | | >| Route 120 & Wilson Road
| | | | >| Round Lake, IL 60073
| | | | >| Tel [phone]
| | | | >| Fax [phone]
| | | | >| [e-mail]
| | | | >|
| | | | >|
| | | | >|
| | | | >| -
| | | | >| -To subscribe/unsubscribe, email "[e-mail]"
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| | | |
| | | |
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------------------------------

Date: Tue, 17 Jun 2003 10:08:41 -0500
From: "Katherine Malm" <[e-mail]>
Subject: RE: [CANSLIM] stop losses and profits

Hi Chris,

(Normally I make these kinds of responses offlist, but email to your
individual email address keep getting bounced back.)

At any rate, thanks!!

Katherine



- -----Original Message-----
From: [e-mail]
[mailto:[e-mail]]On Behalf Of Dempsey, Chris
Sent: Tuesday, June 17, 2003 7:20 AM
To: [e-mail]
Subject: RE: [CANSLIM] stop losses and profits


Excellent post Katherine!

- -----Original Message-----
From: Katherine Malm [mailto:[e-mail]]
Sent: Tuesday, June 17, 2003 8:02 AM
To: [e-mail]
Subject: RE: [CANSLIM] stop losses and profits


Hi Mike,

I had to stretch my brain cells to remember back to this discussion from
last year!

Refining and redefining my sell rules has been a number one priority for me
since early 2000, so you'll probably understand why I've modified these
since last year. Part of what makes sell rules more complex is that the
market will influence how breakouts behave, and therefore how much
"tolerance" one would give a stock after the breakout. Last August, when
this note was written, we were deep into the Bear. Very few stocks were
breaking out and for those that were, the action was always very tentative.
This "low tolerance" point of view was part of the responsiveness to market
conditions.

Now, I've developed a more sophisticated means of monitoring breakouts in
addition to the general market health warnings that we can see from simply
looking at the price/volume chart of the index averages, so the sell rules
can be specific, but still adaptable to strong vs weak markets.

From a market perspective, the initial tolerance is affecting by asking if
this is a "strong" or "weak" market:
(1) Is the market in a confirmed rally?
(2) Are the number of breakouts increasing?
(3) What percentage of the breakouts are up >=20% within the first 3 weeks
after their breakout?

For the stock itself, the intial tolerance is affected by asking if this was
a "strong" or "weak" breakout:
(1) Was the breakout on strong volume?
(2) If the breakout was on strong volume, did it close above or slightly
below the pivot?
(3) Did the breakout follow through (i.e., show the ability to continue to
move up, however small, after the breakout)?
(4) Was the volume on the breakout week higher than the previous week?

In simple terms you can then have 4 combinations:
(1) Strong Market, Strong BO (highest tolerance)
(2) Strong Market, Weak BO (midrange tolerance)
(3) Weak Market, Strong BO (midrange tolerance)
(4) Weak Market, Weak BO  (lowest tolerance)

The initial sell stop is set either at 8-10% below purchase (high
tolerance), 4-5% below purchase (midrange tolerance) or at breakeven (low
tolerance). You'll notice I'm more tolerant on the initial stop loss than
WON, as some stocks exhibit a particular volatility pattern that would force
you out unnecessarily.

I also do not use hard stops unless I'm out of town and can't review my
holdings. I use end of day prices to determine these points. Often, when a
stock has a wide-bar range, it kicks in a sell stop unneccesarily. If the
stock is weakening, hitting the stop intraday, but doesn't close below the
stop, I will watch action on the next day and determine whether the stock is
bouncing back on volume (showing strength) or wandering up on low volume
(showing continued weakness).

Regardless of market strength, after one of the following, the initial stop
is moved to breakeven:
(1) For high liquidity stocks (>=100K shares), did it rise >=20% after the
BO?
(2) For low liquidity stocks (<100K shares), did it rise >=15% after BO?
(3) Has 3 weeks passed since the BO?


Katherine



- -----Original Message-----
From: [e-mail]
[mailto:[e-mail]]On Behalf Of
[e-mail]
Sent: Monday, June 16, 2003 11:25 AM
To: [e-mail]
Subject: Re: [CANSLIM] stop losses and profits



Katherine,

A while back you shared the below sell rules with me, and I was wondering
if you could provide a clarification on item #2.  After a stock has been
held 2 weeks, you stated that you move your stop loss to break even, and I
was wondering if that was independent of the action of the stock. In
particular, if you buy a stock that breaks out, and in the first couple of
weeks moves down a little ( -1 to -3% from pivot), but then moves back up
into a + terrritory, do you still move to break even, or do you keep the
7-8% stop loss in place, and if so, for how long?

Thanks

Mike

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------------------------------

Date: Tue, 17 Jun 2003 10:52:48 -0500
From: "Katherine Malm" <[e-mail]>
Subject: RE: [CANSLIM] fwht pivot

This is a multi-part message in MIME format.

- ------=_NextPart_000_006D_01C334BE.973688B0
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Hi Charley and Simon,

While you might look at the chart and think "breakout!", the key is in the base
itself. Among the many technical guidelines, it's critical to view the setup
within the guidelines of "a valid setup."

For FWHT, you have to look at the length of the base to see why there is no
pivot at 14.15 as you suggest:

http://www.cwhcharts.com/katherine/FWHT060503.JPG

You might then argue that the price/volume action on 6/6 is "a breakout" but
keep in mind that as a stock pushes up the right side of a base, the volume will
increase, often surging and falling back on quiet volume. That's what you want
to see in a good base. So, simply because the volume was high on 6/6, doesn't
make it a breakout, as the base was not yet complete.

While this is a critical distinction when running a computerized algorithm for
determining whether a stock should be included on one of our site watchlists, I
think it has broader implications to the CANSLIM investor in general. That is,
among the many things one looks for when deciding whether a stock has properly
setup for an impending breakout, one of them is to avoid bases that are too
short. While one might look at a chart like FWHT and say "so what?" it's only 27
days in the cup vs. the 30 required, the real issue is, at what point do you
break "the rules?" This is something on which I never compromise. If the set up
is valid it's valid. If it isn't, I wait.

Here's the setup currently. The pivot is established after the consolidation has
lasted at least 30 days (only flat bases allow for shorter time periods and this
is too deep to be considered a flat base):

http://www.cwhcharts.com/katherine/FWHT061603.JPG

Katherine

- -----Original Message-----
From: [e-mail]
[mailto:[e-mail]]On Behalf Of [e-mail]
Sent: Tuesday, June 17, 2003 7:42 AM
To: [e-mail]
Subject: Re: [CANSLIM] fwht pivot


Hi Simon: I read it the way you do. Perhaps we can get Katherine to explain why
cwhCharts reads it differently.

Charley


- -----Original Message-----
From: [e-mail]
[mailto:[e-mail]]On Behalf Of Simon MacMahon
Sent: Tuesday, June 17, 2003 7:22 AM
To: [e-mail]
Subject: [CANSLIM] fwht pivot

Greeting, I haven`t posted much as of yet so I thought I would get the
ball rolling with a question I recently came across. Regarding
FindWhat.Com (Fwht), a stock with good fundamentals, accelerating
earnings, decent group, RS 96, good margins and ROE. It has recently
been mentioned at CwHCharts.com with a CE of 15.63. At that site the
pivot is indicated to be at 15 in which case it hasn`t broken out yet,
but if I were to have looked at the chart I would have put the pivot at
14.15 with a breakout having occurred on June 6th. Any thoughts
would be appreciated.


- ------=_NextPart_000_006D_01C334BE.973688B0
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    charset="us-ascii"
Content-Transfer-Encoding: quoted-printable

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
<HTML><HEAD><TITLE></TITLE>
<META http-equiv=3DContent-Type content=3D"text/html; =
charset=3Dus-ascii">
<META content=3D"MSHTML 6.00.2800.1170" name=3DGENERATOR></HEAD>
<BODY>
<P>Hi Charley and Simon,<BR><BR>While you might look at the chart and =
think=20
"breakout!", the key is in the base itself. Among the many technical =
guidelines,=20
it's critical to view the setup within the guidelines of "a valid=20
setup."<BR><BR>For FWHT, you have to look at the length of the base to =
see why=20
there is no pivot at 14.15 as you suggest:<BR><BR><A=20
href=3D"http://www.cwhcharts.com/katherine/FWHT060503.JPG"=20
target=3D_blank>http://www.cwhcharts.com/katherine/FWHT060503.JPG</A></P>=

<P>You might then argue that the price/volume action on 6/6 is "a =
breakout" but=20
keep in mind that as a stock pushes up the right side of a base, the =
volume will=20
increase, often surging and falling back on quiet volume. That's what =
you want=20
to see in a good base. So, simply because the volume was high on 6/6, =
doesn't=20
make it a breakout, as the base was not yet complete.<BR><BR>While this =
is a=20
critical distinction when running a computerized algorithm for =
determining=20
whether a stock should be included on one of our site watchlists, I =
think it has=20
broader implications to the CANSLIM investor in general. That is, among =
the many=20
things one looks for when deciding whether a stock has properly setup =
for an=20
impending breakout, one of them is to avoid bases that are too short. =
While one=20
might look at a chart like FWHT and say "so what?" it's only 27 days in =
the cup=20
vs. the 30 required, the real issue is, at what point do you break "the =
rules?"=20
This is something on which I never compromise. If the set up is valid =
it's=20
valid. If it isn't, I wait. <BR><BR>Here's the setup currently. The =
pivot is=20
established after the consolidation has lasted at least 30 days (only =
flat bases=20
allow for shorter time periods and this is too deep to be considered a =
flat=20
base):<BR><BR><A =
href=3D"http://www.cwhcharts.com/katherine/FWHT061603.JPG"=20
target=3D_blank>http://www.cwhcharts.com/katherine/FWHT061603.JPG</A><BR>=
<BR>Katherine<BR><BR>-----Original=20
Message-----<BR>From: [e-mail] [<A=20
href=3D"mailto:[e-mail]">mailto:owner-canslim@lis=
ts.xmission.com</A>]On=20
Behalf Of [e-mail]<BR>Sent: Tuesday, June 17, 2003 7:42 =
AM<BR>To:=20
[e-mail]<BR>Subject: Re: [CANSLIM] fwht =
pivot<BR><BR><BR>Hi=20
Simon: I read it the way you do. Perhaps we can get Katherine to explain =
why=20
cwhCharts reads it =
differently.<BR><BR>Charley <BR><BR><BR>-----Original=20
Message-----<BR>From: [e-mail]<BR>[<A=20
href=3D"mailto:[e-mail]">mailto:owner-canslim@lis=
ts.xmission.com</A>]On=20
Behalf Of Simon MacMahon<BR>Sent: Tuesday, June 17, 2003 7:22 AM<BR>To:=20
[e-mail]<BR>Subject: [CANSLIM] fwht =
pivot<BR><BR>Greeting, I=20
haven`t posted much as of yet so I thought I would get the<BR>ball =
rolling with=20
a question I recently came across. Regarding<BR>FindWhat.Com (Fwht), a =
stock=20
with good fundamentals, accelerating<BR>earnings, decent group, RS 96, =
good=20
margins and ROE. It has recently<BR>been mentioned at CwHCharts.com with =
a CE of=20
15.63. At that site the<BR>pivot is indicated to be at 15 in which case =
it=20
hasn`t broken out yet,<BR>but if I were to have looked at the chart I =
would have=20
put the pivot at<BR>14.15 with a breakout having occurred on June 6th. =
Any=20
thoughts<BR>would be appreciated.<BR>  </P></BODY></HTML>

- ------=_NextPart_000_006D_01C334BE.973688B0--



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