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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(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.

Wipro Ltd. (WIT -$0.08 or -0.49% to $16.15) closed slightly lower on below average volume.  This stock was first featured on Wednesday, November 01, 2006 in the CANSLIM.net Mid Day Breakouts Report (read here) with a $15.34 pivot point. After its appearance the stock enjoyed a modest gain, then pulled back and found support right at its 50 day moving average, a very healthy sign. On December 13, 2006 this stock tested its 50 DMA, overcame earlier weakness, and ended the session with a modest gain. Since then the stock has quietly climbed into new all-time high territory on only average volume, not the high volume that would be indicative of institutional buying demand (the "I" criteria). Wipro resides in the Computer -tech Services industry group which is currently ranked 31 out of the 197 groups covered in the paper, placing it in the much coveted top quartile and satisfying the "L" criteria.  As long as WIT continues trading above its 50 DMA, the bulls remain in control and odds favor even greater gains.

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This stock is a high-ranked leader that resides in a strong group. The Computer - Tech Services group is currently ranked 30th out of 197 covered in the paper, placing it in the top quartile of groups and helping satisfy the "L" criteria. It was very encouraging to see WIT literally close at the absolute high tick of the session. Additional gains backed by solid volume in the coming sessions would be a reassuring confirmation of this fresh breakout. Conversely, if the bears quell the bullish demand and this stock falls back into its prior base, the breakout would be negated and that would raise concerns. Remember to always follow the 7-8% sell rule to limit losses whenever a stock falls that amount from your purchase price.

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View all notes | Alert me of new notes | CANSLIM.net Company Profile

View all notes | Alert me of new notes | CANSLIM.net Company Profile

CANSLIM.net Profile: Wipro Limited provides information technology services and products worldwide. It offers software solutions, IT services, IT consulting, business process outsourcing services, and research and development services in the areas of hardware and software design. The company operates in three segments: Global IT Services and Products, India and Asia Pac IT Services and Products, and Consumer Care and Lighting. The company serves markets, such as manufacturing, banking, financial services and insurance, government, IT and IT-enabled services, telecommunications, and education. The firm was founded in 1945 and is headquartered in Bangalore, India. WIT has increased its earnings versus the year earlier by +43%, +29%, and +38% in the past three quarters Mar, Jun & Sept ‘06, which is a steady and strong rate of growth helping it meet the "C" criteria.  At the same time, WIT has grown its sales revenues by +33%, +32%, and +35%, respectively. The company has shown solid annual earnings growth (the "A" criteria) and maintains a healthy Return On Equity (ROE) of +35%, nicely higher than the +17% guideline. Usually we prefer companies with a much smaller supply of shares outstanding.  This company hails from the Computer Tech Services group which is presently ranked 33rd on the 197 Industry Groups list, placing it in the top quartile and satisfying the "L" criteria. It also sports a healthy Up/Down ratio of 1.4. The Up/Down Volume Ratio is a 50-day ratio that is derived by dividing total volume on up days by the total volume on down days. A ratio greater than 1.0 implies positive demand for a stock. However, because it has spent a lot of time basing, its Relative Strength (RS) rank falls shy of the 80+ guideline. That shortcoming gives investors all the more reason to watch for a definitive sign of buying demand before entering.

What to Look For and What to Look Out For: WIT is currently below its $15.34 pivot point and continuing to trace out a 9-month long base during which it has been confined to a $15.50-10.18 trading range. Look for this strong leader to eventually break out of its current base on above average volume and rise clearing all remaining overhead supply. If a breakout occurs with at least +50% above average volume, a new technical buy signal would be triggered. It is essential to see volume swell meaningfully when any issue blasts into new high territory, as price progress without high volume otherwise leaves it questionable with respect to meeting the "I" criteria. Proper trading discipline demands patience before a position is initiated, so avoid any temptation to buy "early" without volume driven gains to confirm a true buy signal. As always, stop losses should be placed 7-8% below your entry point to preserve capital.

Technical Analysis: WIT has spent the past 9 months building a base pattern. This stock is $0.71 below its April 18, 2006 all time high close of $15.27. Ideally, once this stock triggers a technical buy signal it will manage to close above that level and be on its way to further new high closes. This stock’s fundamentals remain strong and it is also encouraging to see its 50 DMA rise above its 200 DMA in recent sessions.