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.

Smith Micro Software Inc. (SMSI +$1.28 or +5.84% to $20.65) surged into new high territory with a considerable gain today on more than twice its average volume. This stock was first featured in the April 2007 edition of CANSLIM.net News (read here) as the stock was pulling back to test support near its $18.27 pivot point.  On March 27, 2007, a few days after the latest follow-through day for the major averages, this issue vaulted out of a lopsided cup-with-handle type base pattern with gains back by monstrous volume triggering a technical buy signal. Statistically, about 40% of winning stocks will pull back after breaking out and test support near their pivot points. In this case, rather than failing and dropping back into its prior base, it was encouraging to see the bulls show up and defend that important level. For the next three weeks, this stock traced out a bullish "3-weeks tight" type of chart pattern as it consolidated its recent move in a narrow trading range. This bullish consolidation gave investors more than enough time to accumulate the stock when it was trading below its $19.18 maximum buy price. 

This stock's Earnings Per Share (EPS) rating is a 73, which was noted in the report as being below the ideal level. Besides this shortfall, its other ranks are strong. It is encouraging to see the company earn a very healthy Relative Strength (RS) rating of 90, and its relative strength line rose into new high territory as this stock advanced.  The company has managed to increase its earnings by above the +25% guideline in each of the past three quarterly comparisons versus the year earlier, satisfying the "C" criteria. SMSI resides in the Computer - Software/enterprise group which is currently ranked 16th of out the 197 Industry Groups covered in the paper, placing it in the much preferred top quartile and satisfying the "L" criteria. It is important to note that this stock has climbed above its "maximum buy" price of $19.18 and is now too extended to be considered buyable under the proper guidelines.  It serves as a great example of how a healthy leader performs after a technical buy signal is triggered. 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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Smith Micro Software, Inc. (SMSI)	- Kenneth J. Gruneisen
Ticker Symbol: SMSI (NASDAQ)	Industry Group: Computer Sftwr-enterprise	Shares Outstanding:  24,400,000
Price: $18.63	Day's Volume: 963,100 3/30/07	Shares in Float:  20,000,000
52 Week High: $20.04 3/28/2007	50-Day Average Volume: 1,092,400	Up/Down Volume Ratio: 1.2
Pivot Point: $18.273/08/2007 high plus .10	Pivot Point +5% = Max Buy Price: $19.18	Web Address: http://www.smithmicro.com/

CANSLIM.net Profile:  Smith Micro Software, Inc. and its subsidiaries engage in the development and marketing of wireless communication software products and services in the United States. Its products include QuickLink Mobile, which turns data capable wireless handsets, PDAs, and wireless integrated notebook PCs into wireless data connectivity devices; QuickLink Phone Manager, which enables users to be able to easily edit the phonebook and calendar that reside on a wireless handset on a PC computer; and QuickLink Mobile Enterprise. The company's fax and communication products enable users to exchange faxes and data files with remote modems, fax/modems, and fax machines on the Mac OS X operating environment. In addition, it offers StuffIt Wireless, an image compression technology, which reduces the size of a JPEG picture file up to 30% without any additional loss in image quality. The company also offers various software products, which provides end-users the hardware information they need to evaluate, fine-tune, and manage their system. Additionally, Smith Micro offers consulting services, including Website design and installation; hosting; and order fulfillment services for customer Web stores. It provides wireless connectivity products to the original equipment manufacturers market, primarily wireless service providers and mobile phone manufacturers, as well as to consumer.  It has demonstrated solid earnings growth in the past few years (the "A" criteria) but has a sub-par Earnings Per Share (EPS) rating below the 80+ guideline. SMSI has increased its earnings by +70%, and +136% versus the year earlier period in the past two quarterly comparisons (Sept & Dec '06), as the company increased its sales revenues by +114% and +115%.  It grew its earnings by triple digit percentages in the prior two quarters, satisfying the “C” criteria (+25% minimum) impressively in that regard. The company hails from the Computer- software- enterprise group which is presently ranked 18th on the 197 Industry Groups list, which places it in the much coveted top quartile of industry groups that are needed to satisfy the "L" criteria. The number of top-rated funds with an ownership interest has grown sharply from 21 funds in March ‘06 to 58 funds as of December '06, a compelling sign of increasing institutional interest (the "I" criteria).

What to Look For and What to Look Out For: Look for SMSI to find support near its $18.27 pivot point while the path of least resistance may likely tend to lead it higher.  As long as the pivot point is not breached then the technical breakout remains intact.  For disciplined investors, $19.18 may be considered the "maximum buy" price, which is +5% above the pivot point. Until either one of these two levels is breached the stock remains buyable within the proper guidelines. It is also important to see volume continue to recede as this issue pulls back to consolidate its recent move. Approximately +40% of stocks pullback and retest their pivot points before charging higher. However, if volume swells and more damaging losses occur and SMSI cannot find support near its pivot point, the bullish breakout may be negated. Remember, 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.

Technical Analysis: SMSI blasted out of its lopsided cup-with-handle type pattern on Wednesday March 27, 2007 with considerable gains on over 4 times normal volume! Since then, the stock has quietly pulled back on lighter volume toward a possible retest of support near its $18.27 pivot point. SMSI is currently trading -7% below its 52 week high ($20.04) but clear of resistance due to overhead supply. History shows us that stocks that have cleared prior chart resistance run the greatest chance of advancing meaningfully.