CANSLIM system and Back from Holiday

This site was just starting up as I left for a scheduled holiday. I returned yesterday and am back in the saddle.

In addition to a place to discuss stocks, methods and the general market, this forum will continue to post educational material related to CANSLIM. In general I will try to post items that are pertinent to the phase of the current market. We are free to couple in any of the other methods from the other fourms if we can couple them into a cohesive trading system. CANSLIM is a longer-term trading method than some of the ideas being discussed in other forums. However in the beginning of any trade there is a short term thought: We buy a stock because we think it is going to go up (soon). In particular Pascal's 20-day money flow market tracking system has direct application to us. I have also found effective volume and active boundaries have pertinence to my CANSLIM trading as these techniques may help at the actual buy point.

The CANSLIM method is an intermediate/longer-term market timing system. By intermediate term I mean we look for rallies that at the outset look like they have 3 to 9months or more positive movement ahead. By long term these 3-9 month moves exist within longer cyclical moves of 18-months to 5 years. Within this system we attempt to buy strong fundamental stocks at the beginning of the move and keep them for major gains. We tend to invest in just a handful of positions with a concentrated portfolio. We attempt to identify the big leaders before they make their move.

Part of the CANSLIM timing system is to judge the beginning of a new market rally. The market is in correction right now. The process is somewhat simple but with nuances where experience is important. The simple part of judging a market bottom and the beginning of a new rally phase starts with counting the rally attempt x-days since the bottom. On 5/24 the NASDAQ put in a closing low. On 5/26 there was a slight undercut but finished with a positive close. This marks day-1 of a rally attempt. Today was day two. We tend to ignore day-1 through day-3. It is often quite difficult to see what is happening near a bottom because of short covering that may be going on in the initial days of a rally. It is on day-4 and later that we look for a large move up on volume higher than the day before on any of the major indices: NASDAQ, S&P, Dow, NYSE Composite. If and when this occurs we move from market in correction to market in confirmed rally. The definition of large move up is somewhat subjective and depends on market volatility, at this point in time something like 1.4% to 1.7% or more. I believe Dr. K is using a 1.4% threshold now and that IBD may be using a slightly higher threshold. Coupled with a general market strength move is the need for leading stocks to be setting up in sound basing structures. This requires some experience in chart reading, something I will spend some time on in the future.

In the mean time some of the stocks that are looking like they are holding up well or may be in sound structures are:
CRM, GMCR, CF, CMG, NFLX, CBST, TIF, IPGP, FOSL, HAL, ST, OTEX, ILMN, TPX, WYNN, HLF, CRR, M, ATML, and VMW. Since I have been away for almost two weeks this list should be considered incomplete but in general this is where I would expect leadership to emerge from.

One though of caution is that we are already more than two years since a major market bottom and many of the stocks have formed late-stage bases. These are potential conditins of a major market top and we could get faked out in the near term.