CANSLIM stock performance 2013

[Ken]

Thanks Mike for sharing your valuable insights as always. Scanning through the list I see lots of familiar names that I've been involved in over 2013. However, I'm not seeing TWTR on this list so wondering how CANSLIM investors & IBD handle such young issues that demonstrated high demands and explosive price actions but yet to have historical earnings?

[Harry]

I have started watching the DSA videos. I was under the impression that most of these picks were to highlight a stock getting ready to break out of specific pattern? For example, ALGN just broke out above recommended buy point yesterday yet already showed a 3-5% gain on the sheet you provided.

I know you are not their spokesman but is IBD recommending to buy a stock the day it is highlighted in a DSA? If so, doesn't this contradict the buy advice given in the DSA videos? I guess what I am asking is ... why did IBD release this list? Is it simply demonstrate they are identifying stocks early?

I don't expect you to know the answers - just thinking out loud.

[Mike]

I have started watching the DSA videos. I was under the impression that most of these picks were to highlight a stock getting ready to break out of specific pattern? For example, ALGN just broke out above recommended buy point yesterday yet already showed a 3-5% gain on the sheet you provided.

I know you are not their spokesman but is IBD recommending to buy a stock the day it is highlighted in a DSA? If so, doesn't this contradict the buy advice given in the DSA videos? I guess what I am asking is ... why did IBD release this list? Is it simply demonstrate they are identifying stocks early?

I don't expect you to know the answers - just thinking out loud.

Harry,
IBD is not recommending buying a stock on the day of the DSA video. It is suggesting that it might be a good candidate for your watch list however. Stocks should be bought at the right time. In CANSLIM investing the right time is when the stock breaks through a proper buy point on large volume. Buy points of the standard bases are selected usually at a resistance point in the pattern such as the top of the handle in a cup and handle pattern. Volume should be 50% or more above 50-day average volume. For ALGN which has broken out of a flat base the buy point is the top of that base 60.00. Yesterday it broke above that price on volume 67% above average volume. However when I inspect the base I can see an internal resistance point established by the top of 12/26/13 bar at 58.50. This could establish a more aggressive buy point allowing you to purchase it earlier in yesterday's breakout. The DSA video was on 12/6/13 when ALGN was showing that it was forming a flat base and demonstrating that it was holding above its 10-week moving average. Couple this with the last reported increase of 62% earnings increase over the prior like quarter in 2012 made it a reasonable candidate. The price gains shown on the pdf are from the date of the DSA report. I suspect this approach was adopted to make it simple to run the calculations instead of inspecting each chart for the proper buy point and testing for the proper volume criteria for each stock.

Clearly one could have made money in 2013 by blindly purchasing stocks on the day of the DSA but that is not the recommended approach. ARUN (largest loser on list) for example would never have been purchased after placing on a watch list as it never broke out, it just failed prematurely. Waiting for the proper buy point is what is recommended to avoid some obvious losing positions.

[Harry]

Harry,
IBD is not recommending buying a stock on the day of the DSA video. It is suggesting that it might be a good candidate for your watch list however. ... The price gains shown on the pdf are from the date of the DSA report. I suspect this approach was adopted to make it simple to run the calculations instead of inspecting each chart for the proper buy point and testing for the proper volume criteria for each stock.

Got it. Thank you for your time to write a detailed reply!

Harry

[Mike]

Thanks Mike for sharing your valuable insights as always. Scanning through the list I see lots of familiar names that I've been involved in over 2013. However, I'm not seeing TWTR on this list so wondering how CANSLIM investors & IBD handle such young issues that demonstrated high demands and explosive price actions but yet to have historical earnings?

Ken, I know a few CANSLIM investors who are in TWTR but not many. TWTR shows no earnings and projects no earnings through 2014. Its sales have been growing nicely which is possibly the one excuse to own it. Instead of owning TWTR, in the same industry group are BITA, SFUN and YY. These show tremendous earnings history and at least I would choose them over TWTR. I have learned the hard way that I need a reason to have conviction in my stock selections otherwise I have trouble holding them when they go through a rough patch. All stocks seem to go through rough patches and I tend to sell them at the low print of the rough patch if I don't have conviction.