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.
Hologic Inc. (HOLX -$0.22 or -0.33% to $66.87) closed lower on below average volume as the stock continued to quietly consolidate its recent gains. The company sports a highest possible Earnings Per Share (EPS) rating of 99. It is also encouraging to see the company earn a healthy Relative Strength (RS) rating of 85. The company has managed to increase its earnings by well over the +25% guideline in each of the past four quarterly comparisons versus the year earlier, satisfying the C criteria. HOLX resides in the Medical- Systems/Equip group which is currently ranked 6th of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile needed to satisfy the L criteria. 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.
This stock was first featured on Wednesday, February 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $57.80 pivot point and a $60.69 maximum buy price. However, the February 27, 2007 market correction added enough pressure on this high-ranked leader to push it 7% below the pivot point ($57.80) identified in CANSLIM.net reports. That pullback was contained, and this stock promptly found support at its 50-day moving average (DMA) line, like healthy stocks normally do. This stock appeared in the April 19th, 2007 CANSLIM.net After Market Report (read here) as it was pulling back to its 50 DMA line. The stock spent the next few months pulling back as it violated its 50 and 200 DMA lines.
The bulls showed up a few days after the market's August 29, 2007 follow-through day, which helped HOLX quickly soar to new highs and re-appear on October 1, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with the following note: "Y - A string of 8 consecutive gains on increasing volume has lifted this former leader to new all-time highs. It was previously removed from the CANSLIM.net Featured Stocks List due to weak technical performance on 5/22/07. Its quarterly and annual earnings and sales revenue growth have stayed very strong and it has stellar ranks that satisfy the C and A criteria. First featured in the 2/21/07 CANSLIM.net Mid-Day BreakOuts Report at $58.92 with an annotated graph here." The report identified a new $63.28 pivot point and a $66.44 maximum buy price.
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A very important technical tool that savvy investors have learned to incorporate in their technical analysis is the 50-day moving average (DMA) line. The 50 DMA line plays a pivotal role relative to a stock's price. If the price of a stock is above its 50 DMA then odds are that its 50 DMA will act as formidable support. Conversely, if the price is below its 50 DMA then the moving average acts as resistance. Healthy stocks sometimes trade under their 50 DMA lines briefly, but usually a strong candidate will promptly bounce and repair a 50 DMA violation. When a stock has violated its 50 DMA line and then lingers beneath it, the stock's outlook gets worse and worse as it spends a greater period of time trading under that important short-term average line. Once the 50 DMA line starts sloping downward it should also be acknowledged that the stock has been struggling for a while, and it might be time to reduce exposure and look for places to put that money to work in stronger buy candidates.
Hologic Inc. (HOLX -$0.54 or -0.93% to $57.63) pulled back on light volume, closing today's session near support above its 50-day moving average (DMA) line. This stock was first featured on Wednesday, February 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $57.80 pivot point and a $60.69 maximum buy price. However, the February 27, 2007 market correction added enough pressure on this high-ranked leader to push it 7% below the pivot point ($57.80) identified in CANSLIM.net reports. That pullback was contained, and this stock promptly found support at its 50-day moving average (DMA) line, like healthy stocks normally do. A month later, this stock appeared in the March 21, 2007 CANSLIM.net After Market Report (read here) with detailed analysis of the recent action.
A few days later a new technical buy signal triggered and the stock was again featured in the April 3, 2007 CANSLIM.net Mid Day Breakouts Report (read here) with a new $60.10 pivot point and new $63.11 maximum buy price. Since then, HOLX gapped down on April 5th, falling on heavy volume, a clear distribution day, folllowed by light volume losses and only timid buying efforts. Support remains at it 50 DMA line and longer-term upward trendline. It has not traded -7-8% below its more recent pivot point.
An important lesson that can be derived from this example is that there are times that leading stocks breakout, then pullback and need to be sold. However, if they manage to build a new base, still sport high ranks, and a new technical buy signal is triggered, buying them back could make good sense. This is not easy for many investors to do because emotions come into play, making it very difficult to repurchase a stock after it was recently sold for a loss. That being said, if this stock fails to find support, a new technical sell signal would be triggered an dinvestors shoud act accordingly to protect their capital, as always. If HOLX closes below its 50 DMA line (which overlaps its multi month upward trendline) there would be mulitple technical sell signals to officially pronounce its latestest breakout a "failure". Until then, it still maintains high-ranks and deserves the bullish benefit of the doubt.
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Often, when a leading stock is setting up to breakout of a solid base, it is highlighted in CANSLIM.net's Mid-Day Breakouts Report. The most relevant factors are noted in the report which allows prudent CANSLIM oriented investors to place the issue in their watch list. After doing any necessary backup research, the investor is prepared to act if and when the stock triggers a technical buy signal (breaks above its pivot point on more than +50% average turnover). In the event the stock fails to trigger a technical buy signal and its price declines then it will simply be removed from the watch list.
Hologic Inc. (HOLX 1.18 or 1.97% to $58.67) was first featured on Wednesday, February 21, 2007 in the CANSLIM.net Mid Day Breakouts Report with an annotated DailyGraph (R) that showed favorable trends in the recent number of top-rated funds with an ownership interest, high ranks, and a strong history of solid earnings and sales revenue growth (read here). However, disciplined investors who may have accumulated shares were likely prompted to sell when the recent market corection added enough pressure on this high-ranked leader to push it more than 7% below the pivot point ($57.80) identified in CANSLIM.net reports. It held up above its 50-day moving average (DMA) line though, like healthy stocks normally do. Today HOLX managed a third straight gain on lighter than average volume, however it ended at its second highest close of all-time. It may spend more time basing above its 50 DMA line, yet it is one to have on your watchlist in the event it may eventually break out to new highs with enough volume conviction to trigger a compelling new technical buy signal.
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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(R) 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.
Hologic Inc. (HOLX +$1.90 or +3.12% to $59.04) jumped to a new all-time high, clearing prior chart highs with considerable gains on above average volume today. This stock was first featured on Wednesday, February 21, 2007 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $57.80 pivot point and a $60.69 maximum buy price. Hologic sports a very healthy Earnings Per Share (EPS) rating of 99. It is also encouraging to see the company earn a healthy Relative Strength (RS) rating of 80, which will probably increase after today's impressive price progress. The company has managed to increase its earnings by above the +25% guideline in each of the past four quarterly comparisons versus the year earlier, satisfying the "C" criteria. HOLX resides in the Medical-systems/equip group which is currently ranked 34th of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile and satisfying the "L" criteria. On Wednesday, HOLX jumped above its pivot point with gains and the necessary volume to trigger a proper technical buy signal. It was very encouraging to see HOLX follow through with more healthy gains on heavier volume. It is important to note that this stock is quickly approaching its "maximum buy" price of $60.69, where buying beyond that level is not proper under the guidelines. As always, it is of the utmost importance to sell a stock if it drops 7-8% below your purchase price.
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