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INM Mar 2011 - Have a "L" of a Good Time With Groups Most Favored by the Market
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
What a difference a couple of years can make! At the end of February 2007 the major averages were in good shape. The S&P 500 Index was in the midst of a multi-year rally, and although it had just snapped an 8 month winning streak, it was still about to rally another +12% before topping out. At the end of February 2009 the major averages were in poor shape. The S&P 500 Index, then in an undeniable Bear Market, had fallen in 7 of the last 9 months, yet in the aftermath of the global financial crisis it would then go on to post gains in 12 of the next 14 months.
At the end of February 2011 the benchmark S&P 500 Index is -15.8% off its all-time high. Predictions on where it will be 2 years from now range from new lows not seen in more than a decade, to new record highs the market has never known, or anywhere in between. A 2-year span is a long enough period of time that lifestyle changing moves can happen in the market. That is not said to scare you, but to inspire you to stay attentive to the ongoing market action and pinpoint the best stocks to buy.
Provided that the market continues to rally, the L criteria of the fact-based CAN SLIM investment system guides investors to seek out strong companies in the leading industry groups. Historic studies have proven that group action determines at least half of a stock's performance. Your odds are most favorable when you invest in the industry groups within the market which are producing the best gains.
Take a look at the performance of the groups covered in the Industry Group Watch section through the end of February 2011.
Industry Group Watch - (Data as of close on 2/28/11)
You can see that Oil Services & Integrated, Healthcare, Networking, and Semiconductor groups have started 2011 with the strongest gains. That does not mean that investors should blindly go out and buy any Oil-related, Healthcare-related, Networking-related, or Semiconductor-related companies at random. However, if you are sitting on any stocks that have tallied big gains this year, there is a high probability that they were in one of the market's leading groups. Your success may have a lot more to do with the fact that you picked a company in an industry group that the market has been treating favorably, rather than giving yourself credit for picking a great stock alone.
Meanwhile, the Gold & Silver, Biotech, Retail, groups have clearly lagged year-to-date, as the table above shows. Chances are pretty good that if you are holding any stocks that have been sputtering and struggling this year, they are likely companies in industry groups that have been lagging. Surely there are exceptions we could point to. But if you want to increase your chances of landing more solid winners, the best thing to do is focus your future buying efforts on companies within industry groups that are helping out the most at leading the whole market higher.
Let's take a look back at the performance as of the end of last year.
Industry Group Watch - (Data as of close on 12/31/10)
Of particular note as a laggard group is the Broker/Dealer Index, last year, and thus far into 2011. Did you land any big profits in a stock in the broker/dealer group recently? Probably not! Financial industry reform legislation passed last July may have been a limiting factor. Unlikely to inspire greater confidence in the industry, we have seen fresh headlines that a former Goldman Sachs (GS) board member has just been implicated in an insider trading controversy .
Always stay mindful of the Industry Groups producing the greatest number of stocks hitting new highs. You can do this by scanning the high-ranked leaders reaching the Breakouts Page daily and taking note of the groups that are generating the majority of the companies listed. The Market's Leading Groups section of the monthly newsletter, CANSLIM.net News, also thoroughly summarizes the past month's leadership.
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.