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This one is very compelling. This is how I assess it.
1. Prior uptrend in the past 6 months? - Yes, up 60%.
2. Any 20% moves in less than three weeks? - Yes, 11/15 - 11/30 was 34% in two weeks.
3. Is the base depth less than 25%? - Yes, only 11% deep and 6 weeks long. That is great for a flat base.
4. Is the handle less than 12% deep? - Yes, the two week handle is less than 5% deep.
5. Are there strong earnings and sales growth? - Yes, EPS and Sales growth have been very strong.
6. Are there at least 3 or 4 days volume dry up in the base and handle? - Yes, volume dried up on 1/31; 2/7; 2/17; 3/7
7. How big is the volume on the breakout? The 3/13/12 breakout is on the HEAVIEST volume in over a year. Maybe I'll make an exception and margin a little to get some of this stock.
8. Are the 3 heaviest volume days in the base averaging higher? - Yes, support on 2/10; 2/28; 3/13 each higher than the previous.
9. What is the ROE? 38%
10. What's the caveat and the override of the caveat? - The RS line is lagging a bit which put me in to other stocks and the forward numbers look a little light. The HEAVIEST volume breakout and high ROE in combination with the other strong behavior override the two factors of weakness.
11. Is the market in an uptrend? - Yes.
All systems check. Houston...?
Hey Abe...I agree and will tag along here with a small position. I presume the 4 day trading pattern rules will be applied here.
Generally I want to see how much accumulation we can get in the next two or three days. After that, the 4 days without accumulation sell rule has to be wheighed against the overall strength of the stock and the market. The first 4 days seems best to guage the strength of the launch. This one is providing some pretty special behavior so I might be inclined to sit through any activity above the 20 day line. My model precedent is DRYS on 11/28/06. If the SLXP behavior mimics that of DRYS I will hang on.
Abe, thanks for the contribution to the community. Would you mind explaining to this noob the "4 days without accumulation sell rule"?
Thanks in advance!
yes abe can you explain this sell rule?
It's pretty impossible to explain. However, pay particular attention to the on balance accumulation vs distribution over each 4 day period and you will begin to establish an edge over other traders. 4 days without accumulation right in the first days after the break out, tends to indicate a sell off of some sort. Follow on accumulation in the first 4 days tends to lead to at least a two leg rally over the next 7-8 weeks.
Now if a stock has completed two legs higher, 4 days without accumulation is usually a good sell opportunity. Note the 7 week run in DRYS on 1/12/2007. At that time, 3 distribution days began to over power the buying and a test of the 50 day was in order. It might be easy to say "Oh just buy it an hold it until it breaks the 50 day" but it seems to me that quite often, good stocks can fall right through the 50 day. (See this Winter's SIMO & NUAN).
If you can spot the low volume push to the new high in DRYS on 1/11/2007, following 2 heavy distribution days, at the top of the 2nd leg up, why stick around for the inevitable test of the 50 day. Who knows... it may not hold. The pocket pivot in DRYS on 2/15/07 represents adequate support and then the ascension resumes.
Now if only we can get MS to provide an Edit Post button for "in thread posts." I guess poor editing is the vernacular of social media.
Thanks Abe! very helpful...
Abe, what do you think of SLXP's action today??
What I think about SLXP is nowhere near as important as what you see and how you react.. You are the one who will have to capture the gain; miss the gain; take a loss; or skip the trade all together . I can only steer you toward watching the on balance accumulation vs distribution over the most recent 4 days. And look for precedent in other breakouts from similar patterns. If you can't find any similar breakouts after examining 15-20 other flat bases, that will tell you something too.
I'm just learning so i like to get feedback from a more experienced trader as to how you are analyzing movements in a chart..of course in the end I make my own decisions so you don't have to feel responsible in any way...so today it was interesting to me how tight the price was and it wasn't clear if buyers>sellers....so would you consider it a day of accumulation if price didn't change from the previous day or is it more in line with stalling? I'm still in the process of learning TA..thanks!
12 years into CAN SLIM I am still learning too. I highly recommend that you print to pdf the daily chart of great 6 month runs from 50 to 100 stocks of the past. If you have those in pdf format you can save them into one folder. Then when you find a current stock that looks very strong you can quickly flip through your folder to see if the behavior is similar to the behavior of a prior big leader. O'Neil lists over 100 charts to work from in the book HTTMMIS. He gives you the weekly chart and with MarketSmith you can print the daily chart.
As far as the opinions of more experienced traders goes... we get to learn over and over again that opinions don't hold up very well when it comes to stocks. Good traders change their minds very quickly. Traders often don't like to tell anyone what they are thinking because what we think will probably change before the next close of the trading session. It's a bit like asking a tennis player standing at the base line if he thinks his opponent is going to serve to the inside or the outside, right before the serve. We don't know, but if we are very quick on our feet we can spot certain signs right before the serve is delivered.
It most often takes me at least a full three days to come up with an assessment of the strength at the breakout. All I can say about SLXP is that higher volume coming in tight at the highest price in over a year tends to be positive. Tomorrow will give us new information to assess.
Great advice...I will do that, thanks!
Hi Abe..I'm curious to know your assessment of the breakout so far...thanks!
Abe, your posts are very thoughtful and gives great assesment of stocks. This breakout has worked so far for me. I had this in my watchlist and your post along with the price/volume action helped me zone in on this.
Abe, Now that we know that the stock breakout has failed, what did you learn from your mistake? Thanks!
Well, I sold it first thing in the morning on 3/27 since it had already had a little gap down at the open on 3/22. On 3/26 it extended up almost 2% with volume less than the selling on the 3/22 break. That should have set the alarms of my 3-4 day selling/buying weighting. The 3/22 break really made me very skittish, so when it broke off again on 3/27, I knew something was wrong. So I sold. The models I use like DRYS never exhibited behavior like that.
The mistake was not selling on that third day, extending to new highs with underwhelming volume, following the 3/22 break off.
If you were strictly following O"Neil's 7% loss rule and hold for 8 week rule you could have squeezed a gain out of it as well. It had been so slow after 8 weeks that it was clearly not a leader. Then on 6/7-6/11 the action got pretty wild near the old high. That sort of action in a lagging stock tends to be very problematic.
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