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Special Report Series (Part 3) - Expansion in Leadership Gives Rally a Better Footing
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
When this Special Report Series began March 23, 2008 with Part 1 (read here), the Dow Jones Industrial Average had scored a follow-through day (on 3/20/08) which confirmed the market's latest rally attempt. The blue chip index was the first and only one of the major averages to have risen above its 50-day moving average (DMA) line. Since that time, the major averages have each made additional progress above their respective 50-day moving average (DMA) lines, but collectively, the Dow Jones Industrial Average, Nasdaq Composite Index, and S&P 500 Index remain trading under their longer-term 200 DMA lines as listed in the following table:
The case for a new Bull Market has become stronger. However, one fact remains a concern today which was noted in past reports published during the 2000-2003 Bear Market period. A market is not considered to be in "healthy" shape when all three of the major averages are trading below their longer-term 200 DMA lines. Right now the Dow is only about -1% from reaching that important threshold. If it leads the way, perhaps we will see the other major averages follow it above their 200 DMA line. Such a technical improvement in the days ahead would be a very reassuring sign for investors, perhaps justifying more aggressive buying in equities. When you look to buy stocks, remember that margin use is actually considered appropriate for growth investors. In the Certification program, the experts recommended full margin use during bull market periods, provided that sound buy and sell rules are always followed. Discipline is obviously required to avoid reckless entries and also limit losses. Many investors think of margin use as aggressive, saying "It is too risky", however the response from the learned professionals is that, "It is only risky if you don't follow the rules."
Financial Stocks Show Encouraging Improvement
Technical Improvement in Nasdaq's Advance/Decline Line
Hopefully you have done a good job of preserving capital during the weak early 2008 market period. If not, you may lack the confidence to do some more aggressive buying in equities right at one of the most important times - when odds of your success are more favorable. The early part (first 13-weeks) of a new confirmed rally has historically been loaded with new leaders that often go on to produce great gains, so those who pay close attention to the M criteria are now engaging in new buying efforts. When you look to buy stocks, remember that margin use is actually considered appropriate for growth investors. In the Certification program, the experts recommended full margin use during bull market periods, provided that sound buy and sell rules are always followed. Discipline is obviously required to avoid reckless entries and also limit losses. Many investors think of margin use as aggressive, saying "It is too risky", however the response from the learned professionals is that, "It is only risky if you don't follow the rules."
More Leadership, More New Highs
The compelling part of this investment system is that it can help investors get "above average" returns, meaning beating the major market averages' performance. Here is a timely example where CANSLIM.net demonstrates how the proven approach can yield big success, especially during favorable market periods. The S&P 500 Index is up +5.1% since March 31, 2008. In the same period, Weatherford Int'l Ltd (WFT) has traded up +18%. An investor who bought $10,000 worth of WFT after it was featured in the April 2008 issue of CANSLIM.net News may now be sitting on an $1,800 profit in less than one month.
High-Ranked Leaders That Should Be On Your Watch List
CANSLIM.net Profile: Rowan Companies, Inc. provides a range of onshore and offshore contract drilling services in the United States and internationally. The company's drilling operations are conducted primarily in the Gulf of Mexico, the Middle East, the North Sea, Trinidad, and offshore eastern Canada, as well as in western Africa and onshore in the United States. As of February 26, 2008, it provided contract drilling services through a fleet of 21 self-elevating mobile offshore drilling platforms and 29 deep-well land drilling rigs. The company also manufactures and markets drilling products and systems, including jack-up rigs and drilling equipment in a range of sizes, including mud pumps, top drives, draw-works, and rotary tables, as well as variable-speed motors, variable-frequency drive systems, and other electrical components for the oil and gas, marine, mining, and dredging industries. In addition, it offers mining, forestry, and steel products, such as large wheeled front-end loaders, diesel-electric powered log stackers, and steel plate products. The company was founded in 1923 and is headquartered in Houston, Texas. RDC hails from the Oil & Gas Drilling group which is presently ranked 6th on the 197 Industry Groups list, which easily satisfies the L criteria. There were 183 top-rated funds with an ownership interest in Jun '07, yet that number jumped to 196 as of March 08, offering a very strong sign of increasing institutional interest (I criteria). Its annual earnings growth history has been healthy and quarterly earnings have accelerated for the past 4 latest quarterly earnings comparisons helping satisfy the "C" criteria. Return On Equity stands at +22%, which is above the +17% guideline.
What to Look For and What to Look Out For: Look for the stock to confirm a new technical buy signal by breaking out and closing above its $42.59 pivot point with gains on heavy volume in the coming days and weeks. Deterioration leading to a close under its 50-day moving average (DMA) Line would raise concerns and trigger technical sell signals. Remember that buyable breakouts require the stock close above its pivot point with considerable gains on at least +50% above average volume. Until this happens, patience is key. As always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price.
Technical Analysis: Its July 2007 highs are a resistance point, but there is very little overhead supply remaining to hinder its upward price progress at this time. RDC recently traded above its pivot point, but it lacked great volume conviction behind its gains and has since pulled back on lighter volume to consolidate its move (best viewed on a weekly chart). The stock tested support at its 50 DMA line and is now trading very near its pivot point.
CANSLIM.net Profile: International Business Machines Corporation (IBM) develops and manufactures information technologies, including computer systems, software, networking systems, storage devices, and microelectronics worldwide. Its Global Technology Services segment offers IT infrastructure and business process services, such as strategic outsourcing, business transformation outsourcing, integrated technology, and maintenance. The company's Global Business Services segment provides professional services and application outsourcing services, including consulting and systems integration and application management. Its Systems and Technology segment offers computing and storage solutions, including servers, disk and tape storage systems and software, semiconductor technology and products, packaging solutions, engineering and technology services, and retail store solutions. The company was founded in 1910 as Computing-Tabulating-Recording Company and changed its name to International Business Machines Corporation in 1924. IBM is based in Armonk, New York. The company sports a very healthy Earnings Per Share (EPS) rating of 86 and a strong Relative Strength (RS) rating of 90. Return on Equity of 36% is above the 17% guideline. The company's earning's have been steadily accelerating over the past few quarters but while their sales remain below the +25% guideline. However, its strong annual earnings history (the A) is good and helps overcome this shortfall. IBM resides in the Computer -tech services group which is currently ranked 50th of out the 197 Industry Groups covered in the paper, which helps satisfy the L criteria of it being a leading company in a leading industry group. The number of high-ranked funds owning an interest in its shares increased from 816 in Sept '07 to 833 in March '08, which si good for the I criteria.
What to Look For and What to Look Out For: Recently featured in the 4/17/08 CANSLIM.net Mid-Day BreakOuts Report as gains above its pivot point on high volume confirmed a technical buy signal (read here). Since IBM has already risen above its pivot point with gains backed by the necessary volume to trigger a proper technical buy signal, it would be very encouraging to see this high ranked leader continue rallying above its maximum buy price of $125.88 over the next few days and weeks. Meanwhile, any breakdown into its prior base leading to a close back under its March 24th high close of $119.06 would raise concerns as it would technically negate the latest breakout. Its 50-day moving average line ($114.09 now) would then be the next nearby support level of importance chart-wise, where violations could trigger additional technical sell signals. Avoid chasing it above its maximum buy price of $125.88, where it would be too extended from a sound price base. As always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price.
Technical Analysis: The stock triggered a technical buy signal on Wednesday April 16, 2007 when it jumped above its $119.89 pivot point on over two times average volume. Its chart pattern resembles a 6-month long cup-with-handle. There is virtually no resistance remaining due to overhead supply due to the fact that it just notched a new 6-year high! The action suggests that further gains are likely. Its weekly chart features several up weeks on heavier than average volume versus no above average down weeks since mid-January, which is another very bullish sign.
CANSLIM.net Profile: Investment Technology Group, Inc. operates as an agency brokerage and technology company, which provides solutions spanning the investment process in North America, Europe, Asia, and Australia. The company offers ITG Opt, a computer-based equity portfolio optimizer; Macgregor Enterprise Compliance, a daily and real-time pre-trade portfolio compliance monitoring system; and ITG Logic, a risk management and trading cost reduction tool. It also provides other high tech services for the investment community. The company was founded in 1983 and is headquartered in New York, New York with additional offices in North America, Europe, and the Asia Pacific region. Investment Technology Group Inc. Investment Tech Group sports a strong Earnings Per Share (EPS) rating of a 86 and a very healthy Relative Strength (RS) rating of 92. The company has managed to increase its sales and earnings by above the +25% guideline in each of the past two quarterly comparisons versus the year earlier. ITG resides in the Finance- Investment Banker group which is currently ranked 132nd out of the 197 Industry Groups covered in the paper, placing it outside the top quartile. However, other strong stocks reside in the group which helps overcome this shortfall.
What to Look For and What to Look Out For: Recently featured in the 4/17/08 CANSLIM.net Mid-Day BreakOuts Report (read here). Look for ITG to trigger a technical buy signal, which could come if it rallies and closes above its pivot point with gains backed by at least 1.35 million shares. Volume needs to be at least +50% above average when the stock manages to close above its pivot point in order to trigger a proper technical buy signal - the high volume behind a breakout's gains is a critical sign of institutional buying demand (the I criteria) . It would be very encouraging to see ITG trigger a technical buy signal and continue rallying to fresh highs on heavy volume in the days and weeks to come. However, if volume fails to meet the minimum guidelines then a proper technical buy signal would not be triggered. Its 50-day moving average ($47.01 now) line is the next nearby support level of importance chart-wise, and violations would lead to further downside testing. Avoid chasing this issue above its maximum buy price of $52.86, where it would be too extended from a sound price base. As always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price.
Technical Analysis: On Friday April 18, 2007, ITG traded above its $50.33 pivot point but pulled back and closed below that critical level. The stock held up remarkably well over the past few months as the major averages, and other stocks in this group, got smacked. This is best illustrated by the stock's 92 Relative Strength rating. ITG is encountered some resistance at these levels due to prior char highs. However, if ITG manages to close above its pivot point on meaningful volume it will have cleared a bullish 5-month base. ITG was first featured in yellow, in the April 17th, 2008 CANSLIM.net Mid Day Breakouts Report (read here) with a $50.33 pivot point and a $52.85 maximum buy price.
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program. Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.
The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.