CANSLIM & Momentum Investing 02 (Aug 09 - Dec 24)

[iam802]

Thanks MM. Abv means mkt likely to fall?

NOt yet... the market broke 52 week high last night, but on VERY LOW VOLUMES...

If we see a couple more distribution days.. then its probably due time

In other words, if you establish a new long position, it is getting more dangerous.

Any time the market corrects, it may easily trigger the stop-loss, right?

[millionairemind]

Ya.. typically that's the way cos' 3 out of 4 growth stocks move with the overall market trend.

I guess Winston mentioned about buying on dips. That is probably hindsight.

The reason is because everytime the market trend breaks, you never know how bad or how light its going to get.

[kennynah]

hence. no such thing as a sure thing...no TA tools can guarantee any success...

all positions are just calculated bets....

price is high now.... but i am no longer stubborn to stick to the notion that market will perform a deep correction going from here on....until, i see different data points....

[BlackCat]

So how reliable is that Market Direction indicator ?

I don't think IBDs approach works in a non trending market... get to many false signals or aborted rallies... and I think the mkt was non-trending till Feb (and maybe still is). I will only know with hindsight.

[kennynah]

So how reliable is that Market Direction indicator ?

use more than 1 indicator.. eg, (stars and the sea tide) or (wind direction and bus arrival time)....

[Aspellian]

The reason is because everytime the market trend breaks, you never know how bad or how light its going to get.

I do agree on this one. There are periods of downtrend which can be very bad (eg. Jan - Feb 2009), people are selling at ridiculous prices. IBD will have warned you to get out way before that. Even if they haven signal it; the 8-10% cutloss will also have take you out of the game. IBD did call march 09 follow-through at close to bottom - if you invest with faith (tiptoe plus cutloss with vigilance + growth stocks), you could be doing reasonably well.

An investor friend here did bring up the point that if you didnt lose a single cent in the Great Recession, you should count your blessings. And on top of that if you dare to ride the last year's boom, you are a lucky few.

IBD doesnt advocate 100% success but simply increase your probability of success slightly more.

[winston]

When Are Times Right For Momentum Investing? By MARK HULBERT

THE STOCK MARKET'S EXTRAORDINARY VOLATILITY over the last week has prompted momentum investors to question the wisdom of their approach.

It was all well and good to bet on high momentum stocks when the market was rising. But when the market suddenly reversed course -- especially on Thursday, when the Dow suffered a dramatic intra-day 1000-point plunge -- those previously high-flying stocks were among the biggest casualties.

But it would be a shame if investors therefore decided to give up on momentum investing altogether. The approach has a stellar long-term record, even after taking setbacks such as this past week's into account.

Still, my general points should be clear:

* Momentum strategies are, by themselves, risky, especially when the market's major trend is shifting direction

* It's possible to ameliorate that risk, and in the process increase return, by following momentum strategies only when the market's volatility expectations are low.

[bulltick]

From IBD Monthly newsletter. In short, listen to the market & don't fight with it.

Don't Let Fear & Frustration Guide Your Investing
Posted 07/08/2010 10:11 AM ET

Q&A with IBD Market Wrap host, Kate Stalter

IBD: In recent weeks, the current outlook in The Big Picture has gone from
"market in correction" to "market in confirmed uptrend," then back to
"market in correction." And again on Wednesday, July 7, a new uptrend was
confirmed. What's going on?

Kate Stalter: That kind of see-saw action can certainly be frustrating. But
it's exactly how you know we're in a volatile market, and it proves again
why it's so important to have some objective rules to guide you through all
the changes.

Beware of Distribution Days Soon After Follow-Through Day

KS: In the last two issues of IBDextra!, we talked a lot about
follow-through days. We mentioned how no new market uptrend since the 1880s
has started without one. But we also noted that around 25% - 30% of
follow-through days end up failing - that is, they don't lead to a sustained
uptrend, and the market falls back into a correction fairly quickly.

And as we said in May, if you see distribution days - that is, days of heavy
selling - right after a follow-through day, watch out! That can spell
trouble for the new rally.

That's what happened in recent weeks. We saw distribution soon after the
June 2 and June 15 follow-through days, sending the market back into a
correction each time.

That's why it's important to get back into the market gradually after a
follow-through day. You have to be prepared to spot opportunity and act upon
it, but also be ready to exit quickly, if the indexes turn negative again.

IBD: Since the market has been particularly volatile, when the current
outlook changed to "market in confirmed uptrend" in June, some investors
said they didn't believe it. They said the market didn't "feel" right.

KS: IBD founder Bill O'Neil always says relying on what you "believe" or
"feel" about the market can be a dangerous strategy.

Don't worry about what you feel or what you think the market "should" be
doing. The market itself and the action of leading stocks will show you if
the new rally is working or not. Trust the market since it tells you the
facts. Opinions have no place in investing successfully.

As O'Neil points out in How to Make Money in Stocks, new uptrends tend to
begin when everyone is the most discouraged, when everybody just feels
beaten up by bad economic news and a prolonged bear market. If you let your
feelings or fears get the best of you, you could end up missing out on some
big gains.

2009 is a fantastic example of that. You still had lots of bad economic
news, and many people didn't "believe" the new uptrend. For months after the
follow-through day that occurred in March, plenty of pundits were still
debating whether the uptrend was for real. Meanwhile, Baidu (BIDU), Green
Mountain Coffee Roasters (GMCR), Apple (AAPL), Priceline (PCLN) and other
leaders were all trending higher! People who insisted on arguing with the
market missed out on a lot of 2009's best winners.

3 Things To Do Right Now In New Uptrend

IBD: As we've noted, it's been a rollercoaster market, but as of the July 7
follow-through day, we're once again in a confirmed uptrend. What should
investors do right now?

KS: As with any new uptrend, no one knows how long this one will last. So
this is when you just need to put theory into practice, follow some sound
rules, and make sure you keep your emotions at bay.

There are 3 basic things you want to do...

First, look for stocks that have good fundamentals and are starting to come
out of sound chart patterns. Watching the Daily Stock Analysis video each
day is a good way to find those kinds of stocks, while also improving your
chart-reading skills at the same time.

Second, get back into the market gradually. For example, you can start with
a position that's about 50% of your normal position in a stock. If the stock
acts well and shows strength, add shares. If not, you can sell and avoid any
serious damage.

Third, check the Market Pulse each day to see if distribution days start to
mount. As we mentioned, distribution days early in a new uptrend can spell
trouble.

If you do those three things, you'll be in good shape whether the new
uptrend succeeds or fails. If it fails, you won't be too exposed and you can
avoid any serious damage. If it succeeds and the new uptrend leads to some
big gains, you'll be right there ready to share in those profits.

[lithium]

So is last night's movement a distribution?

[winston]

So is last night's movement a distribution?

According to my definition ( not CANSLIM ), whenever a market move from being upwards to being flat, it's a distribution

The strength in the buying may not have diminished but selling has surfaced, henced the flat closing.