Group action plays a very important role, and experienced investors learn that they can increase their odds of picking a great winner by always focusing their buying efforts in the market's leading groups.  The "L" criteria in CAN SLIM(TM) tells us to choose leading companies in leading industry groups, thus it is suggested that investors choose from the top quartile of the 197 Industry Groups (listed in the paper most days on page B4). A classic example of the success enjoyed by many CANSLIM.net readers usually starts when an investor reads a CANSLIM.net report and buys a featured stock before it has risen above the pivot point by greater than 5%.  After a stock breaks out above its pivot point, there is only a +5% window that investors have to purchase the stock under the proper guidelines. Once a stock rises above the "maximum buy price" the risk of a shake out balloons, meaning that even a normal retracement in the stock might force you to employ the 7-8% loss cutting rule.  Much can be told by the stock's daily action in the weeks and months that follow a breakout. Typically, a light volume and orderly pullback suggests that the bulls remain in control.  However, high volume pullbacks that violate support paint a totally different picture.

Alliance Data (ADS +$0.89 or +1.45% to $60.47) closed higher on above average volume as it tried to repair Monday's negative reversal. This stock made its first appearance on Tuesday, June 8, 2004 in the CANSLIM.net Mid Day Breakouts Report (read here) at $39.60. After making its debut in the CANSLIM.net Mid-Day Breakouts report this stock spent the next few weeks advancing. ADS quickly handed over its gains and turned lower triggering a technical sell signal when it fell 7-8% below its pivot point.  This stock spent the next several months and the majority of 2005 building a new base. Then, in April 2006, this issue gapped higher.  Aftre peaking at $61.40 on July 3rd it has spent the past few months consolidating its recent move.

Recently, ADS was featured in the Thursday, October 19, 2006, edition of the CANSLIM.net Mid Day Report (read here) with a pivot point of $59.03 and the following note, "Gap open gains today on well above average volume currently triggering a technical buy signal and trading at session highs. High ranks with RS line confirming." Last Friday it opened weaker, but it shrugged off earlier weakness and closed with modest gains for the session. However, on Monday, the bears showed up and got the upper hand as ADS negatively reversed after hitting a new high of $62.39. Typically, negative reversals are a sign that a stock is encountering resistance due to heavy selling pressure as it tries to rally into new high ground.  However, today's action was healthy, and until this stock triggers a technical sell signal by falling back into the prior base, or falling under its pivot point by 7%, it still may deserve the benefit of the doubt. As always, it is important to adhere to the 7-8% sell rule to preserve capital. 

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Regular readers of this section in the CANSLIM.net After Market Report are well versed on the importance of upward trendlines.  It is also important to note how stocks behave after an upward trendline is violated.  By definition, an upward trendline develops when a stock has steadily appreciated for an extended period of time.  During that period, the stock vacillates between the lower and upper boundary of the trendline.  However, once the bears show up and the lower boundry of the trendline is violated, then odds start favoring the possibility of further downside testing.

Alliance Data Corp. (ADS -$4.03 or -7.39% to $50.50) got smacked on more than 5 times normal volume today after reporting revenues on Wednesday evening that missed the Street estimates, even while the company's earnings were higher than expected and it raised future guidance.  This stock was recently featured in the July 2006 issue of CANSLIM.net News (read here) as it was then one of the market's most compelling high-ranked breakouts. But on July 13th this breakout failed badly as it plunged on heavy volume and fell back below support at prior chart highs near $55, sliced through an important upward trendline (see the annotated DailyGraph(R) below), and also violated and closed below its 50 day moving average (DMA) line. That evening's CANSLIM.net After Market Update included the following note on ADS - "Gapped down slightly at today's open and traded down considerably on well above average volume. It had initially improved from early lows, however very negative market conditions have pressured the stock badly. It fell into its prior base and has now also breached the additional support expected at its 50 DMA at ($54.70). As previously noted - a considerable break below technical support would be a sell signal." (read here).

This is a perfect example of how important it is to continually monitor your holdings closely and always limit losses by adhering to a strict sell discipline. Under CAN SLIM(R) guidelines, this calls for limiting losses at 7-8% maximum. Last week's ominous action (violation of support) triggered technical sell signals and set the stage for lower prices. Market conditions (the "M") have not helped investors' odds.  The most recent damage will prompt ADS to be removed from the Featured Stocks list.

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CANSLIM.net Profile: Alliance Data Systems Corporation and its subsidiaries provide transaction services, credit services, and marketing services in North America. The company facilitates and manages interactions between its clients and customers through multiple distribution channels, including instore, catalog, and online. Its transaction services comprise issuer services, such as card processing, billing and payment processing, and customer care; utility services consisting of customer information system hosting, customer care, and billing and payment processing; and merchant services, such as point-of-sale services and merchant bankcard services. ADS has increased its earnings by +32%, +42%, +42% and +63% in the past four quarterly comparisons Jun, Sept, Dec '05 and Mar '06, satisfying the "C" criteria. The annual earnings history (the “A”) has shown solid increases in the past several years, which helps reassure investors of strength in the underlying fundamentals of the company.  Return on Equity of 19% is modestly higher than the +17% guideline. The stock is listed in the Financial Services-Misc group which is ranked 8th on the 197 Industry Groups list, satisfying the "L" criteria. 

What to Look For and What to Look Out For:  Now that ADS has reached new all-time high territory on above average volume as it rose above its pivot point, odds favor further gains. Caution would be warranted if it dropped back into the prior base and negated the recent breakout. There would be even greater concerns if a violation of  important chart support at its 50-day moving average (DMA) line occurred.  That would technically be considered a sell signal, and then the odds for a sustained rise and meaningful gains would be greatly reduced. It is also important not to chase this stock above its $59.94 maximum buy price. Always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that much from your purchase price.