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 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.
HDFC Bank Ltd. (HDB +$2.91 or +2.25% to $132.40) posted a gain on light volume. HDB was most recently featured in yellow as it was triggering a technical buy signal in the CANSLIM.net Mid Day Breakouts Report on December 6, 2007 (read here). The report noted a new $139.47 pivot point and a $146.44 maximum buy price. However, soon thereafter the stock pulled back and triggered a technical sell signal when it closed in the prior base, then it violated its 50-day moving average (DMA) line as it pulled back more than -8% below its pivot point. This is one of several examples of the recent "choppy" action seen over the past few weeks in many leading stocks. This pullback corresponded with selling pressure in the major averages. For most of December, the current rally experienced some selling pressure and each of the major averages pulled back below their longer term 200 day moving average lines.
Last week, the bulls showed up and quelled the bearish pressure, and this stock repaired its 50 DMA line violation, however its latest gains have come on quiet volume. The company sports very strong Earnings Per Share (EPS) and Relative Strength (RS) ratings, both at 97. This Indian Bank has managed to increase its earnings by well over the +25% guideline in each of the past four quarterly comparisons versus the year earlier, easily satisfying the C criteria. HDB resides in the Banks- Foreign group which is currently ranked 45th of out the 197 Industry Groups covered in the paper, placing inside the much preferred top quartile, helping satisfy the L criteria. A new technical buy signal would be triggered if this stock manages to rally for a new high close with heavy volume.
This stock was first featured on Wednesday, December 22, 2004 in the CANSLIM.net Mid Day Breakouts Report (read here) at $42.12. The stock has gone through a lot of gyrations since then, causing it to be dropped and re-featured several times. This high-ranked leader has tripled since it was first featured.
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