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Transportation Stock Chugging Further Above Max Buy Level - Thursday, May 01, 2008
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.
CSX Corp. (CSX +$1.60 or +2.54% to $64.55) rose on light volume to yet another new all-time high. CSX sports strong ranks; an Earnings Per Share (EPS) rating of 96, and a Relative Strength (RS) rating of 96. The number of top-rated funds owning an interest rose from 252 in Jun '07 to 269 in Mar '08, which shows increasing institutional demand (the I criteria). Concerns would be raised by any weakness leading to a close under its old chart highs near the $59 area which would have the effect of technically negating its latest breakout.
CSX has steadily advanced since it was featured two weeks ago as it was breaking out of a 3-weeks tight type of chart pattern. The stock was featured in yellow on Wednesday, April 16, 2008 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $58.91 pivot point and a $61.86 maximum buy price and the following note as it was triggering a technical buy signal: "Y - Gapped up from a "3-weeks tight" type of chart pattern and hit a new all-time high with volume running at an above average pace. Widespead strength in the Transportation - Rail group is a nice reassurance of leadership (good L criteria). Better than +25% earnings increases in the 2 latest quarters help satisfy the C criteria, however sales revenues growth rate remains below guidelines. It has a decent annual earnings history (good A criteria)." Its color code was chaged to green after it got extended from a proper buy point. Always limit losses per the 7-8% sell rule, and never hold a stock if it falls more than that from your purchase price.
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