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INM May 2010 - Technical Action Often Predicts Fundamental Changes Coming
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


So many of us are so busy lately that our coffee grows cold before we have a chance to drink it.  It could not be just me who sometimes gets so attached to typing and clicking through emails that the nearby cup of java gets cold before consumed. Well, in the case of coffee, there is a microwave to provide a quick fix.  In the investing world, however, investors should not count on any quick fixes when things have turned cold.  But many people have made the mistake of becoming long-term investors when they didn't intend to.  We have often seen them embrace the old sports cliché that "there is always next year." 

Regular readers of this monthly article know it covers insight on tactical investment management, and it is not very common for it to call out the action in specific issues.  However, this article will take a look a couple of issues which have made some very dramatic moves in recent years, with the hope that it might prompt readers to be more strict about their tactical approach to selling stocks that have turned cold after rallying substantially. If they shape up and start meeting the guidelines again, they can always be bought back.

First up, see a chart of the funky footwear firm Crocs, Inc (CROX) which fell from over $75 to under a buck before rebounding rather remarkably after it "stopped the bleeding" fundamentally. I am not a fan of it now, and am hoping not to confuse anyone into thinking under the investment guidelines we follow it was in any way favorable to bargain hunt and buy it when it was cheap.  You can see at least sales revenues recently ended a streak of negative comparisons versus the year ago period.  That hardly makes it the company it once was, which was a firm showing +25% and greater sales revenues and earnings increases for many comparisons. If you thought you would stick around until next year when it had broken down below its 50-day and 200-day moving average (DMA) lines in November 2007, you realize how far from the $30+ range it still is.  Quick summary: Rallied from $10 in 2006, to $75 in 2007, then fell to $1 in 2008-9, and rebounded to $10 in 2010.

Now have a look at Green Mountain Coffee Roasters (GMCR).  It recently fell swiftly through its 50 and 200 DMA lines, reminiscent of sharp technical downturns in past leaders, like CROX in November 2007 in some ways.  Now, there is no sign of negative comparisons on the horizon for GMCR, however, if there is any hint that the future may hold a downturn in fundamentals, the technical breakdown that took place in the past 2 weeks would be it. Quick summary: Rallied from $7 in 2006 to $99 in 2010.  Maybe it will keep up its great growth, or maybe it will grow at a cooler rate. Maybe it will be better next year.  Those who think that a quick reheat in the microwave oven is likely should at least manage risk at some point to make sure they do not end up kicking themselves later.

 

The above examples are just two of many, many stocks that have come up in recent years using the fact-based approach to investing we rely upon. They offered great upside and great downside potential, like many stocks.  However, these have been candidates meeting the key criteria that have been characteristics of the market's biggest winners as described in "How To Make Money In Stocks."  Combining technical and fundamental analysis is critical. Follow the rules!

About 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.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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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.

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