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    "A Vital Source for the CANSLIM Investor" 

Monday, February 28th, 2005 | 11:23 PM
March 2005
Volume 8, Issue 3
 

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Nasdaq Lagging as Broader Indices Fight to Keep Rally Alive

The Federal Reserve held its first meeting of 2005 during the first week of February, deciding to raise its target rates for fed funds by a quarter point to +2.5%.  This was the sixth consecutive raise since June of 2004.  Alan Greenspan and company refrained from showing any signs that they will stop raising rates in the near future.  They were not worried about rising energy prices or inflation as serious threats to the US economy.

Soon after the FOMC meeting, President Bush submitted his $2.7 trillion budget for 2006.  The proposed budget would raise defense spending by +4.8% and adds +8% to the Homeland Security Department.  The president also planned to trim Medicaid, farm subsidies and assistance to the Amtrak.  The White House projects a $390 billion deficit for fiscal year 2006 vs. a $427 billion deficit this year.  The government also reported last month that the US trade deficit swelled to a staggering $617.7 billion in 2004, topping the 2003 deficit of $496.5 billion. This is why you may have heard reports mentioning the “twin deficits”.

Jobless claims hit a four-year low as they dropped -2,000 in the week ended Feb 12^th to 302,000.  This was the lowest level since October of 2000.  The four-week average also hit a four-year low, declining by -4,000, to 311,750 and remained relatively lower for the entire month. 

Commodities and “old economy” stocks sizzled in February month as the “new economy” stocks in the technology sector weakened, specifically the Internet group.  The dollar returned to its downward trend after taking a brief hiatus.  The US dollar had been rallying since the beginning of the year, but it topped out and regained its longer, well-entrenched downward trend in the latter half of February.  South Korea, the nation with the fourth largest US dollar reserves, announced plans to diversify its reserves towards other non-dollar assets.  This sparked a broad-based rally in the commodity sector.  Commodities are priced in dollars, which makes their appeal and their underlying prices rise (especially gold - which is largely viewed as an alternative to US assets) whenever the US dollar falls.  This helps to explain why gold, copper, silver, energy and other commodity related stocks were standout winners last month. 

Late in February, crude oil blasted out of a 3-month base and set the stage for energy prices to swell.  Crude blasted above its important psychological and technical resistance level ($50 a barrel) late in the month for the first time in three months as colder weather blanketed much the northeastern US and parts of Europe.

Homebuilders were another dominate group last month as several factors led to their ascent.  Firstly, inflation remained in check, helping allay any concern of faster rate hikes by the Fed.  A second factor helping lead to monstrous gains was when the government reported January’s housing starts.  Housing starts surged +4.7% in January to a 2.159 million annual pace, the highest level since February 1984!  Building permits also rose +1.7% to a 2.105 million yearly rate.  Lower inflation, record housing starts, and stellar demand for new building permits has helped lead to monstrous moves in the homebuilder group.    

Technology, specifically Internet stocks, waffled last month, primarily, due to increased competition in the online search arena. Analysts downgraded Internet search giants Google (GOOG) and Yahoo! (YHOO) due to lower ad pricing.  Competition swelled as America Online introduced a new local search service.  The Internet content group suffered as a result, sending many former leaders lower.

The Bureau of Economic Analysis said that the US economy advanced +3.8% last quarter, which was higher than the original estimate of +3.1%.  This adjustment was primarily accredited to a smaller trade deficit and stronger investments and inventories.  Consumer spending modestly retracted last month to a still-impressive +4.2%.

Investors are likely to find the present market direction very confusing and difficult to interpret. Neither accumulation nor distribution has been able to prevail thus far in ‘05. The Small-Cap S&P 600 Index was the clear winner last month.  It was the first index to have a successful “follow-through day”, and it ended the month near all-time record highs. The broader indices, excluding the Nasdaq Composite, ended last month higher after spending the month hovering back and forth on either side of their respective 50-day moving average lines. Merger mania continued, as a slew of companies last in the past month announced mega-mergers totaling in the billions.

We have yet to see clear institutional demand across the major indices, meanwhile distribution days are piling up.  Investors can probably expect a difficult time in navigating until clear accumulation comes to fruition.  Meanwhile, it is important to closely follow the sell rules if any of your positions moves against you. The important price that should be used to determine when to sell and limit the damage is your buy price minus 7-8%.  Refrain from chasing stocks after they have advanced +5% above their classic buy points (pivot point) because risk picks up that a normal correction will force you to sell.
 

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.

- CANSLIM.net News Staff

Nasdaq’s Divergence May Only Be Temporary

It is most perplexing when the market gives investors mixed signals, but that is the case right now. As a result, this might be considered as one of the better times for observation than participation in the equities market.  Or maybe not full participation, anyway, as you probably have some sidelined cash based on this years rough start for stocks.  If the market has you worried, you may be tempted to throw in the towel and sell something that is holding up pretty well. However, I would say to pay close attention to stocks that hold up well and manage to linger near their historic highs during a time when distributional action is leading to many individual failures. Those issues that hold up the best are the prime candidates most likely to lead the market higher during the next rally!  Don’t give up on strong leaders by letting your emotions get the best of you. Sell based upon a sell signal, but otherwise try to give your high-ranked leaders the benefit of the doubt if you can.

While the present market is somewhat of a difficult read, not all of the major indices are in bad shape technically.  In fact, the Dow Jones Industrial Average and the S&P 500 Index are both trading above their 50-day moving average lines. But meanwhile, Nasdaq’s chart has clearly diverged. To make it unanimous for the three major averages, the Nasdaq Composite would need to rise above its 50-day moving average line (now 2,088). Clearing recent chart highs in the range of 2,106 would do a lot more to improve its technical stance, but that would require a +2.65% gain.  Otherwise, the Nasdaq’s divergence continues, and the outlook for the tech-heavy index remains especially suspect while the tech sector is cold.  On the downside, in fact, a technical violation of Nasdaq’s January 24^th low (2,008) might even be expected to lead to more serious downward momentum in the broader market.

"Not many people are pointing it out, but the benchmark
S&P 500 Index is actually only nine points from a new high close"

It is always an encouraging sign to see the Semiconductor Index (SOX) improving above its 200-day and 50-day moving averages, especially since it has a whole lot of influence on the Nasdaq’s action. So it is fair to say there are signs that the tech sector may be coming out of a thaw. It is interesting that we don’t exactly hear a lot of talk of hot demand, and after the latest earnings wave the forward looking guidance from most tech companies hasn’t exactly been particularly warm about the future.  But rest assured, the charts should serve us as a very reliable guide.  Momentum buyers could certainly be lured into the market based upon only a small amount of progress for the major indices, so this situation is worth monitoring closely. In recent days the SOX moved up to within 5 points of challenging its December ’04 high.

One of the ways you might keep an eye on things is by tracking the Semiconductor Holders (SMH).  They track the SOX and they trade just like an ordinary stock or exchange traded fund (ETF) does.  Interestingly, the SMH reached a high of $34.95 before reversing to close out the month of February at $33.99. That intra-day high equaled its December 3^rd, 2004 high to the very penny. What caused the SMH to halt its latest advance abruptly at that precise level? Maybe it was just a cosmic coincidence, but technical analysts would argue that it could possibly be something more important. Chart readers would consider a convincing breakout above that level to be a buy signal.  Meanwhile, its 50 DMA ($32.24) and 200 DMA ($32.78) would appear to offer a fair amount of near-term support. 

My guess is that the SMH (and SOX) may manage to clear the important technical hurdle of their prior chart highs, and most likely that kind of improvement will also coincide with the Nasdaq Composite’s ability to clear some of its critical chart resistance (mentioned above).  How critical is it that we see this happen?  It is very important, especially as it relates to the sustainability of the broader market’s rally, just as you can say something very important about the health of your car’s engine – it is not as good when it is only running on some of its cylinders and not all of them!

Overall, it seems that the market’s engine is running steadily.  Not many people are pointing it out, but the benchmark S&P 500 Index is actually only nine points from a new high close – what would be its best close since the October ’02 bear market lows!  Other indices like the S&P 600 Small Cap Index and the S&P 400 Mid-Cap Index are actually perched up at all-time highs. What does a look at the recent track record for these averages tell you?  Among many things, maybe it tells you that your average small- or mid-cap stock has enjoyed a favorable market environment over the past couple of years.  So we should keep looking for good CANSLIM-based selections, and keep watching for the broader market action to confirm we are in a healthy market.

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: J.B. Hunt Transport Services, Inc. is a truckload transportation and logistics company in North America. Together with its wholly owned subsidiaries and associated companies, J.B. Hunt provides transportation and logistics services to customers throughout the continental United States, Canada and Mexico. Its business segments include full truckload, dry-van, intermodal, and dedicated contract services. It operates approximately 9,900 tractors, and its contracted independent contractors own and operate their own tractors, although they transport freight in the company's trailing equipment. Solid sales and earnings growth has been strong enough to earn it an EPS rank in the top 5% of all stocks in the market. Managements 29% ownership interest keeps them motivated to look after shareholder value.  The number of top rated funds holding an interest has risen from 186 to 204 over the June ’04 to December ’04 period.  Leadership in the Transportation – Truck group puts it squarely in the top quartile of IBDs 197 industry groups, and other strong trucking companies are a nice reassurance.

What to Look For and Look Out For: Look for JBHT to continue advancing after it clearly blasted above its pivot point on above average volume.  Today’s breakout seems to set the stage for further gains, however any reversal and close back in the prior base would be cause for greater concern. Be especially careful not to chase this issue if it surpasses its pivot point by more than 5%.  Keep in mind, that three out of four stocks follow the major indices, and recent distribution shown by the major indices has led to many failed breakouts. To help avoid turning a winner into a devastating loss it is imperative that close sell stops are placed to limit losses at the 7-8% guideline.

Technical Analysis: JBHT is currently in a well-defined upward trend originating in early 2003 in the $10-$13 level (split adjusted), steadily advancing from the lower left to the upper right.  Its chart has astutely followed its rising 50 DMA, finding support above it in the past week.  It spent the past 10 weeks basing in a fairly tight trading range, staying mostly above its ascending 50-day moving average line. Impressive was the breakout today even as the major indices suffered distribution – a clear sign of strength in a questionable market.  Its relative strength line is breaking out to new highs, another positive indicator.  Volume on the breakout spiked 90%+ higher than average, satisfying the guideline for a proper breakout worthy of buy consideration.

Chart courtesy www.stockcharts.com

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

Profile: Overseas Shipholding Group, Inc. (OSG) is the second largest publicly owned tanker company in the world, engaged primarily in the ocean transportation of crude oil and petroleum products. Its modern fleet consists of approximately 100 oceangoing vessels including acquired Stelmar Shipping Ltd.. Some vessels are engaged in the transportation of dry bulk cargo. OSG charters its vessels either for specific voyages (voyage charters) at spot rates or for specific periods of time at fixed monthly amounts.  From time to time, bareboat charters for specific periods of time (generally medium- or long-term) are manned and operated by its customers. OSG has benefited from the recent surge in global energy demand, and this trend does not show any sign of ending. Regardless of the price of crude, as long as demand stays strong, shipping businesses can be expected to benefit.  Solid sales and earnings growth has been strong enough to earn it an EPS rank in the top 2% of all stocks in the market, even though its annual earnings growth history has not been steady. Management’s 12% ownership interest keeps them motivated to look after shareholder value.  The number of top rated funds holding an interest has risen from 138 to 174 over the June ’04 to December ’04 period.  Leadership in the Transportation – Ship group puts it squarely in the top 10% of IBDs 197 industry groups, and other strong shipping companies are a nice reassurance.

What to Look For and Look Out For: Look for OSG to continue advancing from the right side of its cup-like pattern. Typically, the best cup patterns will form downward sloping handles before the stocks begin their strong ascent, as one final shakeout removes the weaker hands before an eventual charge to new highs occurs with heavier volume.  There are exceptions when a handle does not form and the stock advances to new highs.  A lower volume pullback (handle) is welcomed, as long as key support levels are not violated. Look out for any high volume sell off that would push the price below the $60 support level, as that could technically negate its recently impressive gains that came on heavier than average volume.

Technical Analysis: OSG has been in a steady upward trend since March of ’03, and it rallied sharply through much of 2004. It spent the past three months tracing out a cup-like pattern where it had reached a high on 12/01/04, then fell 23% to its low on 01/24/05 before it began tracing out the right side of the cup.  During its base building period you may notice gaps up on 1/14/05, 1/27/05, and most recently on 2/24/05.  These gaps are considered as evidence of institutional buying demand driving the stock toward new high ground.

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 "Hammer" Candlestick Offers Investors a Profitable Entry

In tough markets, like we are in now, one can reduce risk by using trend-reversal technical patterns, e.g., entries from pullback reversals.  I have discussed previously in CANSLIM.net News issues the benefits of two such entry patterns: multi-day pullbacks (Dec ‘03 read here) and 21-day lows (Oct '04 read here and Nov ’04 read here). Now, I will explain another important pattern, the hammer candlestick, describe what it means with regard to market psychology, then show historical statistics that justify using this formation as an entry pattern. Consider the following chart of HANS, a current member of CANSLIM.net’s Leader’s List and featured in the  issue of February 2004 CANSLIM.net News. (read here)

The hammer candlestick--encircled in green--is characterized by a small body (marking Dec 21^st open and close) and by a long shadow to the downside (marking price movement to and from the low of the day).  The hammer candle opens the day with bears controlling price.  Selling pressure drives price down to a point where buyers then step in to control price into the close.  When this pattern forms in an area ripe for reversal, i.e., after pullback into an area of support, it provides an excellent springboard for resumption of its bullish trend.  Note, the HANS trade would have been profitable for a short-term trade (selling 2 to 5 days into the trade), for an intermediate –term trade (selling 20 days into the trade) or as an entry point for a longer-term investment.  Trade management criteria would allow one to minimize risk further (stop loss set just under the minimum of the hammer and buy point just above the high), though the statistics developed here didn’t consider stops.  The hammer technical pattern used with fundamentally strong stocks provides a winning recipe for profit.

Chart courtesy www.stockcharts.com

The following table presents profit results for a list of fundamentally sound stocks: list developed from a Daily Graphs Online Screen (EPS & RS >89, SMR =A, composite rank >89, Acc/Dis =A or B, price >$10 and average daily volume >100k) cross-screened against a Zacks ranking of 3 or better and positive PEG (price-to-earnings-earnings growth) ratios projected for the next two years of less than 1.6.  For each stock, hammer formations were identified over the period from 3/26/04 to 1/25/05 (231 trading days for each of 28 stocks or 6,468 trading days total), then the profit calculated from holding each to the close of the 1st through 5th and the 20^th day following the hammer. 

A hammer was entered on the day following its formation when the following qualifiers were met: (1) bottom shadow was 55 percent or more of that day’s high-to-low range (ensure psychological reversal to leave bulls in control at close); (2) 20-day moving price average was greater than 50-day moving average (insuring price trending up); (3) hammer’s high price must be at least 1 percent lower than the high made 5 days ago (insuring legitimate pullback has occurred); (4) entry day immediately following hammer traded higher than the hammer’s high (insuring bullish strength continuation).  One-hundred-fifty hammers met the entry criteria and were entered on the first day following the hammer at either the high of the hammer or higher at a gap opening if the entry-day open gapped higher than the hammer-day high. Controls defined by the condition that today's price exceeded yesterday's high (a higher high), were traded over the same period; they too were held through the close of days 1 to 5 and 20. 

For example, AMXC produced 8 hammers over the 231 trading days.  Holding through the close of the entry day (day 1) produced an average 0.15% gain; whereas holding through the close of the 20^th day resulted in an average 12.04% gain.  Average gains for the 150 hammers and 3,357 controls are summarized in the bottom row.  Generally, if one held one of these hammer—fundamentally sound stock temporarily in a short-term pullback from a bullish uptrend--for 20 days, the return averaged 7.76% (141.6% annualized), 1.35 times the return of the control held 20 days, which itself proved a very bullish formation.  In fact, only 2 of the stocks averaged a negative return over the 20-day holding period.  The message:  hammer formations at natural reversal points offer low-risk trading opportunities for fundamentally sound stocks.

- Richard W. Miller, Ph.D., Founder TripleScreenMethod.com

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

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Stick To The Chart Action Because It Never Lies
- Soraya Nasrallah, Registered Representative, Source Capital Group, Inc. Members NASD/SIPC 

I would like to start by saying that we enjoy very much using the resources offered by Daily Graphs and IBD. We have found these tools to be extremely valuable, but unfortunately some of the information provided is occasionally incorrect.  Or more often, it might actually be correct information, but it can still cause great confusion for the user. Don’t Panic!  Errors and anomalies may occur in almost any type of service that provides data like that which is offered by Daily Graphs. Below I will mention some samples that have been the source of recent frustration for some.

Investor's Business Daily's EPS and RS ranking systems are great - a far better tool than anything else that is available we have found.  However, their proprietary ranking system allows for certain aberrations that are at times quite baffling to some investors.  For example, VCLK recently dropped from 80 EPS to 79 immediately after reporting earnings of $0.16 vs $0.07 up +129% for the Dec ’04 ended quarter. And ANTP is now trading -70.9% off its high, yet still holding on to a 99 RS rank.

While not extremely common, we have occasionally spotted Daily Graphs Online reporting erroneous information. For example, by O'Neil + Co's own admission, the earnings and EPS rank for AMMD were recently botched for a brief period.  After miscalculating the effects of a non-recurring tax benefit, Daily Graphs Online went from showing +$0.25 to -$0.12 for their Sept '04 number.  Subsequently the stock’s EPS rank fell from 96 to 81.  We have followed it closely for months, and specifically noted the error right when on February 23rd www.investors.com put it in very positive light in their "Daily Stock Analysis" section - and on that day it was also mentioned extensively in the Nasdaq's "The Real Most Active" section on page B6 of the Investor’s Business Daily newspaper. This was especially worrisome when recalling situations like CYD, a former high flyer from the “IBD 100” list whose numbers were later adjusted and revised downward - and the chart failed miserably.  They have AMMD listed with a 94 EPS rank now, and they have corrected the earnings number to as the company reported it.

More commonly, we’ve found disappointment with erroneous “EPS Due” dates provided in Daily Graphs.  This can seem frustrating when you are either blindsided by a quarterly financial report sooner than expected, or when you are expecting earnings news that does not come for another week.  To their credit, Daily Graphs data is usually pretty reliable. However, whenever you’ve got an ownership interest in any stock you would be wisest to check directly with the company about its earnings calendar rather than relying on anyone else to tell you with 100% accuracy.

There are legitimate reasons for some of the abovementioned instances, and the bottom line is that there are times when mistakes can happen.  In other words, there is always a good reason to look at more than just the ranks provided by IBD.  Investors need to learn the basics of reading the chart of a company - so that if, by any chance, the information you see happens to be incorrect or slightly incorrect, you can analyze the chart and make a smart decision.

It is wise to invest your time in learning how to make your purchase or sale decisions based on the chart action of a stock. Of course, this is not the only way to evaluate a stock!  There are several other factors involved - basic fundamentals like its earnings per share over the company’s recent quarterly financial reports.  Don’t ever overlook them! 

  Basics of charting that all investors (or soon-to-be investors) should know about:

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.

Shedding the Light of Pattern Analysis Using Candlesticks - Frank E. Testa fjkltesta@verizon.net

In addition to providing subscribers with top-notch stocks selections that meet the CANSLIM guidelines, our focus is also on educating.  In this light, I present a very simple, yet effective way to analyze charts using Candlesticks. 

Candlestick charts are extremely valuable in pinpointing reversal signals, showing the force underpinning the move.  Whereas a typical bar chart will depict the high, low and close, candlesticks excel at presenting how strong or weak a stock finished in relation to its open.  This is critical because strength at the open that fades by the close is oftentimes a forewarning of weaker prices ahead.  Conversely, a rally into the close is the exact action needed for bull markets.  With candlesticks, this action literally jumps off the page.

As we begin our journey into this exciting charting method with roots in Japan, I will guide you through the process of constructing the candlestick and provide a few simple examples. 

Candlestick Construction
The data needed to construct a candlestick is the same as the bar chart, namely the security’s open, high, low and close.  Remember, the Japanese are primarily interested in where a security closes in relation to its open, thus the distance between the open and close will form the real body.  The lines above or below the real body represent the highs and lows of the session, and they are called shadows.  These shadows represent the session’s price extremes.

Real Body
The color of the real body will be either white or black, depending on where the stock closed in relation to its open.  If the stock closes ABOVE the open, the real body will be white.  Conversely, if the stock closes BELOW the open, the real body will be black.  It is important to note that a gain or loss on the session DOES NOT have a bearing on the color of the body - it is determined only by the relationship of the open to the close.  A stock could end the day lower than its prior session close but still finish above its opening price, and on such a day its candle would be given a white body.

The size of the real body provides a visual as to the intensity of the buying or selling pressure. Generally, long white body candlesticks indicate strong buying pressure, while long black body candlesticks represent heavy selling pressure. 

Doji
Sometimes a security will end the day where it began the session, indicating a stalemate between the bulls and the bears.  As a result, the candle will be missing a real body as the open and close were the same.  The Japanese coin this situation “Doji”, which reflects a period of indecision.  In an uptrend, it can be a sign that the bullish momentum is weakening.  Likewise, in a downtrend, it could be a signal that the selling pressure is abating.  Like all candle patterns, the bullish/bearish interpretation depends on where in the chart such a pattern surfaces.

Reversals
Sometimes a single candlestick will point to a possible reversal of trend, while other patterns will require a cluster of candles.

In this piece, we will focus on the hammer and hanging man, which are single candlestick patterns that arise to forewarn of a change in trend.  The hammer will take place upon a sustained downtrend, and is considered bullish.  Conversely, the hanging man (which has the same shape of the hammer) takes place after an uptrend and is considered bearish.  Incidentally, the color of the hammer or hanging man is not important, though it is the placement of these candles in the chart pattern that is significant.

Hammer
A hammer develops in a downtrend as the bears push the security lower during a particular session, however by the end of the day the bulls exert their might and thrust the stock up to close near its high.  Traders commonly say that a stock is “hammering out a base” when a hammer is formed.

Hanging Man
While taking the same shape as the hammer, the hanging man is situated in an uptrend and has bearish implications.  The hanging man develops as the stock struggles to make further headway.  During the session, the buying enthusiasm dries up, allowing the bears to briefly take over control and thereby forcing the stock lower.  However, by the end of the session, the bulls make a valiant effort to recapture control, pushing the stock up to near its intra-day highs.  Since the pattern has a long shadow (thin line between the close and the low of the day) and closed near its high, this pattern still contains some bullishness, thus it is paramount that one wait for a bearish confirmation (taken in the form of a close below the low of the hanging man) before taking action.

For illustrative purposes, the following page depicts two stock graphs for Ultra Petroleum (UPL) which was recently featured in a CANSLIM.net Stock Bulletin.  The charts are of the same time-period, but one is utilizing candlesticks while the other is a customary bar chart.  Which one jumps out at you?  Can you spot the key reversal sessions?

Bar Chart Example

Candlestick Chart Example

If you would like for us to provide further examples of Candlesticks in the future, let us know.  In the meantime, if you are interested in learning more about this sophisticated charting technique, I urge you to read Japanese Candlestick Charting Techniques by Steve Nison.  Mr. Nison is considered by many to be the most noteworthy pioneer to introduce the West to these Asian charting techniques that date back to the late 1600s. Mr. Nison’s book is written in plain English, making for an easy to understand read, and it contains numerous examples.

Frank E. Testa is an independent investment analyst and devoted practitioner of the CANSLIM methodology. Having obtained the Series 7 Registered Representative license and the Series 63 license, Frank's investment experience spans more than 20 years. He is presently a Level 3 Chartered Market Technician (CMT) candidate in the Market Technicians Association's (MTA's) certification program. To learn more about the CMT, please visit MTA.org. Frank can be reached at FJKLTESTA@verizon.net. Comments contained in the body of this report are technical opinions only. 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.

Like many Internet-based companies today, we have to occasionally deal with issues of tightened security.  You should be able to save your login information, but still may notice more frequent prompts for your username and password to be able to access the premium areas at CANSLIM.net.  We apologize for any inconveniences and ask you to please report if you have experienced any trouble receiving important and timely emails from CANSLIM.net.  We do our best to correct all delivery problems promptly, and we will gladly extend your membership period to make up for missed reports due to legitimate reasons.  Our goal is to always give our members a better value than they expected!

Please understand that we complete the online version of our monthly newsletter, CANSLIM.net News, first, then we hand it off to our layout department.  From there the file is sent to a printing press where the issues are printed and then staple bound. Once that is complete, the boxes of printed newsletters are sent to a mailing house where each one is addressed.  Then the next stop is the US post office. 

Many folks ask, “Why do I receive a useless printed version of this monthly newsletter as late as 3-4 weeks into the month?”  Well, the word "useless" is never a word we like to have used when someone is describing our newsletter.  Some fanatical CANSLIM.net members save their print copies in a binder, then bring it to a family gathering or show it to friends or members of their local investment club. Some like to take their print copy in the car so they have something to read while their spouse is driving.  And one member reportedly used a print copy to get a campfire started on a very cold evening up at Fish Eating Creek!  Seriously though, the print version is advantageous because it is more portable than the electronic version. (We are not serving a very large audience via PDA devices like blackberries yet, although we are surveying the possibilities.) 

As for the print version's timeliness, we thoroughly realize its shortcomings.  We know that it is useful. We like the fact that it is something tangible - easily circulated amongst your co-workers and neighbors.  We know that many members find value in it - so it is far from useless!

The monthly newsletter is always made available online so that our members have immediate access to the information. And in our efforts to make it printer friendly, you may notice that it is now immediately available in PDF format (but unfortunately it is still rather lengthy, say 23-27 pages).  To help expedite it being available in a more compressed print format we have specifically hired outside contractors.  Hard copies we mail today are typically 12 pages, while those who might recall our humble beginnings may remember when it was only 2 pages! 

Rest assured that as our circulation has grown, through each and every step, we have gone to great lengths to get CANSLIM.net News out as fast as possible - cracking the whip on those involved with the print layout, the actual printing, and the mailing of the newsletters.  And we are presently working toward getting a printable PDF version of the compressed print format out to members sooner.

Admittedly, our past efforts should have done more towards explaining the new additions and changes to the services offered at CANSLIM.net. Those who have been with us a while know that there was once a time when CANSLIM.net did not have any daily reports like the awesome mid-day screen with notes.  We did not always mark featured stocks yellow/green or include "Pivot Point" references and give ongoing notes on support/resistance levels to watch.  However, since the introduction of CANSLIM.net's daily Mid-Day Breakouts Report and After-Market Update for paying members it seems that some new members are expecting very quick and unrealistic results - leading to disappointment. 

This newsletter alone offers a regular dose of good CANSLIM ideas and education, and only after we fielded loads of inquiries about Stock Alerts, Special Reports and other premium s