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    "A Vital Source for the CANSLIM Investor" 

Monday, January 31st, 2005 | 11:56 PM
February 2005
Volume 8, Issue 2
 

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The Stock Market - Bearish in January 
- Steve Wolf 

Over the last several weeks, many friends and business associates have asked, “So, what are you doing with this market?  Is this a correction or a new bear market?”

The research and opinions out there are astonishing.  Here are some examples.

• “Just a correction, the Market is cheap by standard valuations, a great buying opportunity.”  Many of these “whiz kids” are upgrading target prices.  In December, their mantra was the January Effect- stocks will go up. These are the same Analysts and Experts who in 2000 told you that Sun Microsystems at $50 was cheap and the Market was “just correcting.”
   
• “We think 2005 will be another positive year for financial markets and any year that ends with a 5 is usually outstanding.”  This is the sentiment echoed by the majority of brokerage firms, advisory newsletters and CNBC.   After reading and hearing this, my initial thought was – No!  Let the market be your guide.  However, many remain bullish, just as they were in 2000, 2001 and 2002.

Where are we now?

Understanding how the stock market works, we know that you, I and Dr. Hackenbush do not affect a stock’s price.  The institutions- Mutual Funds, Pension Managers and Hedge Funds- move markets.  A bull trend ends when the Institutions start liquidating positions.  This can be observed by distribution days.  A distribution day occurs when the indices go down on above average and increasing volume from the prior day.  To change the trend of the Markets, one only needs to observe 4-5 distribution days over a four week timeframe.  This occurred on December 7^th, 16^th, 17^th January 3^rd and 4^th.   Furthermore, we have experienced additional distribution days on January 11^th, 19^th and 20^th.  Additional sell signals were observed earlier, when the market made new highs on below average volume.  This is occurred during the last two weeks of December.

The time to have exited the stock market was on January 4^th – The fifth distribution day in four weeks.

In the graphs below the distribution days appear in red, while the indices making new highs on low volume are denoted in green.

What to do now?

The best place to be lately has been cash.  We don’t know if this new bear trend will last two weeks or two years, but what we do know is the market changed directions.  It will take a new confirmed rally to change from that view.

The secondary indicators still show above average bullishness.  The VIX index (new methodology) is at 12.82.  The put/call ratio is at 0.56.  These are not the type of readings that will expunge excessive bullishness.

The first place to raise cash is your losers.  Any investment that goes down 25% needs to go up 33% just to break even. Likewise, 50% down translates into a 100% move to breakeven.  Small losses are always easier to repair.

For Mutual Funds and Managed accounts, some Professional Managers were adept at managing their portfolios during the bear cycle of 2000-2002.  It’s all right to stay with the skillful managers, just make sure you unload the underperformers.

Some stocks and sectors are doing okay.  They are: Energy, some Medical (HMO’s), Metals, Consumer Defensive and Leisure (Casinos) and Homebuilders.  However, three of every four stocks follow the markets direction.  Personally, I really don’t want to be long any sector.  No need to try to be a hero.

Yes, we could be having a reflex rally.  I actually have been expecting one on unconvincing and below average volume.  For now, I am inclined to use the strength as an opportunity to sell or short sell into strength.

The way to determine if a rally is real and the current bear trend is over:  Look for a confirmed market rally marked by a legitimate follow-through day of gains on higher volume.  What you need to observe is a confirmation day.  A confirmation day is defined by an up day of 1.7% on any of the averages.  The confirmation day should be on above average volume with volume higher than the previous day.  Don’t pay attention to the first couple of days.  There will always be attempted rallies in a downtrend.  Pay attention to days 4-10 of new rally.  Usually confirmation days on the 4-7^th day are a signal of a more robust rally, while those that come on the 8-10^th day of a new rally attempt will more often produce weaker new trends.

As of now, I am still a bear. I don’t try to predict markets, I have learned to follow them.  Let them be your guide.

As Mr. Miyagi said in the movie Karate Kid, “The best way to avoid a punch is not to be there.”  Think about that while the market is still in questionable shape. 

The preceding information is solely my opinion and my interpretation of the CANSLIM methodology.

- Steve Wolf 

CANSLIM.net's most timely buy candidates are analyzed by our experts in great detail in the "Stocks to Watch in This New Market "section.

Notes:

• This is a list of the strongest groups based on the total number of new highs achieved in the group. For example, 1 stock making 10 new highs is the same as 10 stocks making 1 new high.
• If there were less than four stocks in the list of stocks making new highs then the top five stocks in that group were added to the list.
• Any stock that was more than 20% off its 52-week high was eliminated from the list regardless of any other characteristics.

• Links above (in 3rd column) refer to the original write-ups on previously featured stocks.

- CANSLIM.net News Staff

That was a trick question. Some investors might say that they stuck with it and gave everything back, holding winners until all gains had deteriorated. That is not what I meant about sticking with it, however. What I am talking about is sticking with it on a system that lets the market action tell you when to get in and when to get out of your stocks. If you follow this system, you will sell to preserve your gains and minimize losses, one by one, whenever each of your stocks gets into technical trouble. By the end of January, if you really did “stick with it” in the right way, you probably exited some of the stocks you owned and raised a lot of cash.

"CANSLIM has been recognized as one of the most successful investing strategies"

CANSLIM has been recognized as one of the most successful investing strategies. But it is very easy to let frustration lead you into doing things you just shouldn’t do in the market. I don’t recommend experimenting. Most average investors just seem to wing it too much, and that is where their problems start. They argue that even in the toughest of times there must be some areas in the market that are benefiting, and they press on and keep on buying and holding. So, I want to continue a bit more on the subject of sticking with it – specifically because I know how easy it is to get distracted by an exciting situation! We are all tempted to make exceptions to the rules and guidelines. I did it in my early years as a CANSLIM investor, and the outcome was rarely pretty whenever I made exceptions.

Thinking about how difficult it is to stay committed to the methodology, I also can’t help but recall my September ’04 presentation the West Coast chapter members of the American Association of Individual Investors (AAII). Delivering insightful messages about various investing approaches, the AAII empowers individuals in becoming effective managers of their assets through programs of education, information, and research. Having made a visit to the same exact venue four and a half years earlier, on the more recent visit I asked if any members had seen the CANSLIM-based presentation I had made (right when the great bull market was coming to a climactic end). There was a similar sized crowd, but not one person from the crowd had seen my earlier visit. I thought a bit about how that organization had seen a complete turnover, at least in the local memberships. It may be possible that they are contributing to investors’ lack of commitment to any particular investing methodology for any great length of time. However, it is not fair to blame the AAII for investors’ haphazard investing activity. They’re doing a great job! In fact, their Washington DC chapter just scheduled me to be their presenter on March 26th of this year.

Keep your emphasis on companies with strong fundamentals first, and use technical analysis to guide you when to do your buying and selling. You are doing it right and you should not feel bad about selling stocks as they are weakening. It takes you out of harm’s way and gives you the firepower (cash) to be proactive about buying again whenever another good confirmed rally takes hold.
 

Kenneth J. Gruneisen - A Registered Principal, Ken manages a Source Capital Group (Member NASD,SIPC) branch office and offers personalized assistance. Investors with a significant financial interest in equities may inquire about opening an account by calling the office locally at (954) 785-1990 or 1-888-237-8399 or emailing to kgruneisen@sourcegrp.com  Further information is always available upon request. Contact us if you know anyone that may have an interest in receiving this or any of our other reports. Comments contained in the body of this report are technical opinions only and are not necessarily those of Source Capital Group, Inc. 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. Source Capital Group, Inc. is a NASD/SIPC member firm.

Chart courtesy www.stockcharts.com

Financials | StockTalk | News | Chart | SEC | Zacks Reports

Profile: Kronos Incorporated develops, manufactures and markets human resources, payroll, scheduling, and time and labor solutions including workforce management solution solutions called the Workforce Central Suite, Kronos iSeries Central Suite and Timekeeper Central System. Its workforce management solutions enable organizations to reduce costs and increase productivity, improve employee satisfaction, align employee performance with organizational objectives and put real-time information in the hands of decision makers. It also operates a professional service and technical support organization that maintains systems and provides professional and educational services delivered onsite or via the Web.  It hails from the Computer-Integrated Systems group which ranks in the top 19% of IBD’s 197 Industry Groups list.  Top-ranked mutual fund ownership has increased from 131 funds in March ’04 to 170 funds as of September ’04. Strong and steadily increases in its quarterly and annual earnings have earned it a top 5% rank based on its earnings per share growth versus all other public companies.

What to Look For and Look Out For:  The maximum buy price computed at 5% above the pivot is still $1.08 away from its close today.  There is no overhead supply, and the lack thereof means the path of least resistance appears more likely to lead to higher prices.  Be careful not to chase the stock and buy it too extended from the pivot point.  Watch the daily activity to make sure the stock does not fall back into its prior trading range, thus negating the breakout and prompting concern.  Minimize losses and always sell if any stock drops 7-8% below your buy point.

Technical Analysis: It had been tracing out a four-month base and blasted above it on January 28^th, 2005 as it gapped up for considerable gains on massive volume over 8 times normal.  Volume totaled 905,100 as KRON blasted trough its pivot point.  To help view this number in perspective the 50-day average volume total is now 186,300 shares.  When a stock clears a 16--week base on that kind of volume the institutional crowd is speaking clearly.  Particularly impressive was the fact that KRON was able to breakout while the broader market was under pressure.

Chart courtesy www.stockcharts.com

Financials | StockTalk | News | Chart | SEC | Zacks Reports

Profile: Cal Dive International, Inc. is an energy services company with operations in two primary business segments: marine contracting and oil and gas production. Within its marine contracting segment, the Company operates primarily in the Gulf of Mexico (Gulf). It operates the North Sea and Asia/Pacific with services that cover the lifecycle of an offshore oil or gas field. CDI's fleet of 22 vessels and 25 remotely operated vehicles (ROVs) and trencher systems perform services that support drilling, well completion, intervention, construction and decommissioning projects involving pipelines, production platforms, risers and subsea production systems.  The Oil & Gas Field Services group is in the top 8% of IBD's 197 industry Groups, offering nice reassurance it is a leader in a strong group of stocks. Top-ranked mutual fund ownership has increased from 132 funds in March ’04 to 179 funds as of September ’04. Its current quarterly sales and earnings increases have been very solid in recent comparisons and it gets a very high EPS rank despite more of a hit-and-miss annual earnings history.  Note that CDIS was previously featured on November 5^th, 2004 in a Stock Bulletin (here).

What to Look For and Look Out For: Look for a breakout from its 3-month base on above average volume as a decisive technical buy signal. A break above its pivot point on at least 50%+ above average volume would be considered a buy signal.  Patience and discipline are important until then.  CDIS closed 11 cents below its pivot price as of the close today. If the broader market is able to curb its recent decline and regain its positive posture, leaders like this may move substantially higher. 

Technical Analysis: CDIS is currently tracing out a 3-month base. It showed impressive relative strength earlier this month as it increased while the major indices were moving lower.  Three out of four stocks tend to move in tandem with the major indices (see my INM article for more on this).  It is particularly encouraging to see stocks rally when the major indices decline.  CDIS briefly violated its 50-day moving average then was able to draw support. From its January low of $38.22 it has since moved higher.

L= Leader  |  ET = Extended  |  BO = Break Out (new)  |  BV = Big Volume
NC = No Comment  |  F = Fundamentals
C = Current Quarterly Earnings Per Share |  A = Annual Earnings Per Share
S = Shares Outstanding | I = Institutional Ownership

The Federal Deficit, The Trade Deficit and The Weak Dollar: Are You As Concerned As The Media
- Richard W. Miller, Ph.D., Founder TripleScreenMethod.com

I for one am tired of hearing the gloom and doom chanting of a biased press. We’re continually barraged by headlines and statements like:

“Don’t Get Crushed by the Falling Buck” Business Week, 12/06/04

“Drooping U.S. Dollar—Medicine or Poison?” Wall Street Journal, 12/16/04

“If lots of people (foreigners) try to leave market, we’ll have chaos because they won’t get through the door.” So says Warren
Buffet, the world’s most visible dollar bear and someone who has bet $20 billion dollars against the dollar. Forbes, 1/10/05

Run Google searches for “weak dollar” and “2004” and get 140,000 hits; for “trade deficit” and “2004” and get 126,000 hits; for “federal deficit” and “2004” and get 99,100 hits. There has been lots of writing about these subjects last year. Many with ulterior motives try to get us to fear the state of the U.S. economy.

The arguments go this way: the Federal government has too much debt; the U.S. trade balance needs balancing; the continuing weak dollar will be catastrophic for the U.S. All in all, the U.S. is becoming a third world country. You need to ask yourself: Is this true, and how will these macroeconomic events impact my investing?

Investors should understand these macroeconomic forces for two reasons: they impact market psychology and at times the market’s reaction. On the one hand, you might think things are bad enough to remain on the sidelines and miss out on a big move, or on the other, you might ignore economic announcements all together and be swept over in a responsive market move. Though we are all interested in picking good stocks (and most spend 95 percent of their time here), understanding macroeconomic conditions that move the market is more important because as much as 75 percent of a stock's movement is due to the combination of sector and general market strength.

Consider first the value of the dollar. In a free market, the value of the dollar changes with its supply and demand, just like the value of any other commodity does. If there is increased demand, the dollar strengthens. When foreigners convert their euros and yen to dollars to invest in U.S. markets (stocks, corporate bonds, treasuries, real estate), the increased demand for the dollar strengthens it and, at the same time, weakens other currencies. Conversely, when there are excess dollars or less demand for them, the value of the dollar falls.

The Fed strengthens the dollar by increasing interest rates or by soaking up excess dollars—decreasing the money supply--by selling notes from their portfolio. The first draws money into the United States as foreigners must first trade or exchange for dollars--thereby increasing the dollar’s strength--before entering the U.S. market; the second obviously decreases supply.

Some currency statistics: On Dec. 31, Europe’s common currency, the euro, traded at $1.3567 compared with $1.2579 a year earlier (a 7.9 percent weakening of the dollar); the yen at $0.00976 compared with $0.00931 (a 4.8 percent weakening). In fact, this past year the dollar hit its lowest level since the euro’s 1999 debut and a five-year low against the yen. A weakening dollar congers up bad images, but is it really bad for the U.S. economy?

Though it sounds bad, a weak dollar is both a good and a bad thing. On the one hand, it makes U.S. exports cheaper in foreign lands, and that benefits U.S. exporting companies, both increasing their profits and creating new jobs. It also can decrease the U.S. trade deficit if its foreign trade partners have strong enough economies themselves. U.S. goods become less expensive in foreign lands, while their goods become more expensive in the U.S. Of course, in the U.S. we read the Chicken Little cry from our press: “The sky is falling,” because what’s good for the U.S. is not necessarily good for the rest of the world. Understand, the U.S. is the economic engine of the world.

On the other hand, a weak dollar can reach a point where foreigners prefer to take payment and hold currencies other than the dollar. Since they now hold $1.7 trillion (largely in U.S. treasury notes) that would increase supply and thereby weaken the dollar further. In the extreme, the Fed would be forced to step in and raise interest rates both faster and to a greater extent than they otherwise would have. And that would throw water on our burning economy and, in the process, deflate the stock market.

But dollar flight is not very probable. No matter what you read. Money takes the path of safest, most positive return: it goes where the economy is brightest. And, the U.S. economic growth is much stronger than most other major regions. Bank of America projects U.S. gross domestic product (GDP), the most comprehensive measure of a country's economic health, will increase by 3.8 percent in 2005. Compare that to 1.7 percent growth in the euro zone, 1.2 percent for Japan, and 2.1 percent for Britain. Instead of shying away from the U.S., foreign investors focus on the U.S. economy, the U.S.'s steady political system, faith in the U.S. Federal Reserve, and the transparent corporate structure and market exchanges.

As Arthur B. Laffer, discoverer of the famous Laffer Curve which shows that reducing tax rates increases government revenues, recently published in WSJ (1/03/05) “Destination U.S.A.” “Look around, Germany hasn’t had a growth spurt since the 1960s. France still has mandated maximum workweek of 35 hours, maximum income tax rate of 58 percent, a 1.8 percent annual wealth tax, and government spending at over 50 percent of its GDP. Japan has had a stock market down by 70 percent from its high in 1989… So what’s not to like about the U.S.? Whether you are an American or foreigner the U.S. is the choice destination for capital.

The weak dollar benefits U.S. small businesses as well. In a WSJ (1/20/05) article entitled “Weak Dollar, Strong Sales,” Timothy Aeppel described the increased manufacturing opportunities opened by the weak dollar in Europe for small business, citing new European orders for gas fittings producer, Superior Products, Inc., and couplings manufacturer, Ohio Screw Products, as examples. Further, he cited Robert Lawrence, a professor of international trade and investment at Harvard University, who estimated that up to 750,000 U.S. factory jobs, many from small businesses, were lost in recent years due to the U.S.’s “strong” dollar policy.

In a Reuters article (12/29/04) “Broadway Takings Up as Weak Dollar Draws Tourists,” the benefits of increased U.S. tourism are cited, as foreigners can buy more dollars for their currency—things become suddenly cheaper in the U.S. Foreign tourists, lured to the U.S. by the weak dollar, boosted Broadway takings by 3 percent in 2004 ($749 million, up from $725 million in 2003 and 1.2 million foreign visitors versus 650,000 the year before). And these visitors do more than attend Broadway shows: they rent hotel rooms, buy food and visit attractions.

Similarly, at the other end of the country, the Arizona Republic (1/27/05) reported in “Weak Dollar, a Strong Lure” that the international passenger count was up 11.1 percent at their Phoenix Sky Harbor International Airport through Oct. 2004. And this foreign demand was making its way to Arizona resorts, parks, restaurants and shops. Overall, the Travel Industry Association of America forecast total international arrivals to the U.S. rose almost 9 percent over 2003 to 43.8 million visitors in 2004.

China chooses not to allow the U.S. the trade advantages of the weaker dollar. She has chosen instead, since 1994, to peg her currency, the renminbi, to the dollar (8.25 renminbi to $1). Consequently, America keeps buying their blue jeans, and DVD players from China. As a result China has become a large trade partner with the U.S. who ran a trade deficit against China of $147.7 million dollars over the first 11 months of 2004 (compared to $114.2 over the same period in 2003). To peg their currency to the dollar, however, China has to maintain a reserve of dollars to step into the world market as needed and either buy or sell dollars against her renminbi (become its "market maker" of last resort if you will). As of Nov. 2004, China holds $191.1 billion in U.S. Treasury Securities, second only to Japan’s $714.9 billion. Of course, the Bush administration wants China to "float" its currency so as to solidly support U.S. businesses, while Congress considers a bill sponsored by Repulican Lindsay Graham and Democrat Charles Schumer to impose a 27.5 percent across-the -board tariff on Chinese goods if the Renminbi were not floated.

To be fair, the weak dollar has a flip side too: it costs you more to make an international visit; for some products, produced exclusively overseas, like French wines and black winter truffles, prices must rise in the U.S; imported commodity prices (oil, steel, plastic) rise as well. So eventually, the weaker dollar can lead to price inflation here. Often, prices don’t rise because the producer wants to maintain market share and not force the buyer to seek U.S. alternatives.

As Lawrence Kudlow reported in an IBD Perspective piece on 12/31/04, Critics of 'Hoover' Economy Now Attack Bush Prosperity: "U.S. GDP has been trending steadily around 4 percent for two years (half a percent above the nation's 3.5 percent long-run growth trend)...Meanwhile, the unemployment rate moved down from 6.3 percent to 5.4 percent indicating strong U.S. work conditions...The household survey shows 2.5 million jobs gain during Bush's first term...Corporate profits, without which businesses cannot create jobs, now stands at a record $1.118 trillion--56 percent above the recession trough, 25 percent above the prior recovery peak of the late 1990s and at a near-record 9.5 percent of GDP.

For some perspective on the U.S’s total debt and annual fiscal deficit consider the figure, which shows how these have changed over the last 42 years. Both of these are presented as a percentage of the U.S.’s annual Gross Domestic Product to normalize the date. Note three points from this data: (1) total U.S. debt has been larger, even in the roaring economic times of the 1990s; (2) the annual deficit is small, relative to the U.S. GDP and also has been larger; (3) the U.S productivity, as measured by GDP/population, has steadily increased during this period. The U.S.’s growing economy and its increasing productivity will generate the tax dollars necessary to reduce the deficit; the lower dollar against the Chinese will lower the U.S. trade deficit; the U.S. will continue to take trade dollars created by its negative trade balance to fund the U.S. federal deficit (mostly U.S. treasuries), so U.S. investors don’t need to and can instead provide the capital needs of small business and large corporations (high return stock ownership). All in all, things economic are brighter than the press would have us believe.

The Above Article Was Prepared by Dr. Richard Miller, Founder of...

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Savings, Equity Investments & Real Estate- Core Holdings in Any Portfolio
- Soraya Nasrallah, Registered Representative, Source Capital Group, Inc. Members NASD/SIPC 

My article this month has been inspired, in part, by the fact that I actually felt somewhat guilty about being a woman and contributing to draining away part of the monies within our nation’s Social Security system. It will be discussed as to why I am saying this, however if you were watching Ted David on CNBC during the show Street Signs on the 25^th of January, you might have seen a clue to what I am about to cover.

First, though, I want to thank you for allowing me to have your attention on a monthly basis as I offer you important basics on the markets and other information that I find most pertinent for novice investors. Although the concepts I write on apply for all, some may say that this article is particularly directed toward women. I hope you enjoy the information and the humor. At the moment, I will ad that I am writing my article from the gorgeous Delano Hotel in South Beach and I just ordered a coffee and a warm chocolate cake with pistachio ice-cream!

As I was diligently working on the basics for this month’s article, I put CNBC on the television. Upon hearing Ted David talk about the problems within our Social Security system, I was shocked as he abruptly mentioned that because women live much longer than men on average, they are draining our Social Security funds within the system! WOW! With his comments I was shocked, yet for a moment I thought about this reality! One peculiar thing about it is that most women who are now collecting benefits did not work as much as men worked during the same timeframe. So, while women may be receiving less monthly income as benefits, more often than not they end up getting that monthly income for a longer period of time.  I don’t guess that many women out there are feeling slightly guilty about this reality.

I figured that Ted might be lucky if he did not get fired, reprimanded, or devoured by the powerful women at that station, like Maria Bartiromo! I assume that they must just love him and know that he is the kind of man that truly is good-hearted, but that he sometimes does not know what he is saying.  I will admit that I became worried about the “zaad – which means seed in Dutch”- that he has perhaps planted in the minds of a few bad men who might be inspired to think up ways to eliminate a portion of the elder women in this country so that they won’t drain the system anymore. To Ted I say: “Careful with what you say”. 

For all of you wonderful ladies and gentlemen, I have jotted down a few important investment basics. These are items that every investor should incorporate within their portfolio for a well-balanced base and healthy investment mix.  I consider the core foundation of a healthy investment pie to be made up of: Savings, Equity Investments & Real Estate.

Note that each investor is different, so the percentage allocated within each category would be different depending on the situation and preferences of each investor. Consult your investment advisor for assistance in creating your personal portfolio mix.   

The following is my recommendation for what investors overall should have as a starting point to build the base of a successful personal investment pie:

It is important to understand that this is based on my personal opinion and that not everybody would agree with having so much invested in one area or another. The reason why I believe in having a large portion of your personal investment pie in Real Estate is due to the fact that you can always rent a piece of property, but you can’t rent a stock.

Apart from that, include within your mix a variety of investments that can withstand the ups and downs through different phases of our economic cycle.  It is a great way to build the foundation of your personalized investment pie.  

 It is crucial for you to have some sort of investment pie or at least some written plan as to what kind of investment pie you should have! You have to begin with the end in mind if you are determined to have sufficient money for your living expenses and desires when you are ready to retire.  Whether man or woman, do not rely on Social Security alone to support you.  Whether or not the system is solvent and the money is there or not is another thing!  I’m sure you’ll be hearing more about that later.

Once you’ve got a written plan for your investment pie, it is time to treat yourself. I highly recommend a taking quiet moment to relax while sipping on a cup of Vanilla Rooibos/Matte Vana tea from Teavana while you get ready to have your pie.  Enjoy!

Soraya Nasrallah, obtained her Series 7 license in 1992, and has served in the capacity of Sales Assistant, Head of Operations Department, and Stockbroker.  Contact Soraya Nasrallah via email at snasrallah@sourcegrp.com or by phone at (954)785-1990 for assistance you with your portfolio. She will be pleased to offer ideas that suit your investment needs, and she can help you achieve the gains you have been searching for.  Miss Nasrallah has just introduced a new educational program called InvestorWiz! specifically created for teenagers and novice investors, incorporating stock market basics with CANSLIM in a colorful and picturesque format. It is the perfect gift for those who just don’t know much about the world of stocks and investing! Comments contained in the body of this report are technical opinions only and are not necessarily those of Source Capital Group, Inc. 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. Source Capital Group, Inc. is a NASD/SIPC member firm.

January served as a painful reminder that an investors’ success of purchasing stocks is greatly diminished when the overall market (the “M” in the IBD acronym for seven common characteristics of great performing stocks) is in bearish mode.  The few stocks that managed to breakout quickly encountered selling pressure and reverted back into their bases, while others witnessed a complete collapse in their bullish chart patterns.  While the CANSLIM acronym makes it easy to remember the key traits to look for in selecting stocks, it is the last letter of the acronym that serves as the engine.  Without the “M” in full throttle, an investors’ success in buying stocks is clearly uphill.  Remember that the placement of the letters in the acronym is not from most critical to least.  Given that three out of every four stocks will trade in the direction of the overall market, it is vital to keep your pulse on the indices’ performances.  There is no use swimming against the trend hunting for those few pockets of strength.  Instead, your best offense in this climate is a patient, prudent defense. 

Wait for a rally, followed shortly thereafter (usually between the fourth to tenth day of the rally) by a follow through (confirmation) day, as an indication of a new uptrend.  For a follow through to be valid, it must be accompanied by an increase in total market volume from the prior day and an upward move of at least 1.7% in the Dow, S&P 500, or Nasdaq Composite.  Remember, not all follow through sessions result in a new bull market, but no bull market has begun without a follow through day.

So, while your e-mails may have been quiet (aside from the mid-day and after-market reports from CANSLIM.net), rest assured that a watchful eye is being kept on the market to spot the signals to go ahead and become more aggressive.  This could happen as early as this week or could take a couple of months. 

We are designing this page to make it even easier for you to spot and analyze the most action-worthy issues within the proper guidelines. The most recent notes appear on the page to keep you informed of certain news, support, resistance, technical buy and sell signals, and more. Ongoing technical analysis and archive links provide you with a detailed history and the ability to review previously published reports. You can continually monitor this page throughout any trading session while data such as price and volume is continually updated, normally refreshed in 10 minute intervals. Be watching your email inbox for a special announcement and link to this exciting new addition to your CANSLIM.net Stocknews Membership.

CAN SLIM (written here as "CANSLIM" or "Canslim:) is a registered trademark of William O'Neil + Co. CANSLIM.net is not owned nor affiliated with William O'Neil + Co. or any of their subsidiaries including The Investor's Business Daily newspaper.