Tag: Canslim

Posted on

How To Spot Stock Market Tops

​​​​We all know the importance of market status in determining an investor’s stance in the CANSLIM style. It not only helps you realize gains by being aggressive when the risk is minimal but also protects you from unwarranted risks of markets.

When the market is in a Confirmed Uptrend, it is the best time to make the most of your gains. This is when most breakouts are successful, and hence an investor carefully following the patterns of his/her stocks makes big gains. But how can you pre-empt a probable weakness in the market so that one can lock-in gains and play defensive with less or no exposure? A distribution day can provide a systematic and credible approach to do that.

What is a Distribution Day?

A distribution day is when a market representative index (for example, Nifty50) loses more than 0.2% in a day, with volume higher than that of the previous session. When a distribution day occurs, it hints that big institutional investors are exiting or reducing their positions in the market. Institutional activity is what moves any market, especially in India where retail participation is small. Though a distribution day hints at institutions liquidating their positions, it loses its impact after 25 trading sessions. 

How Does it Help in Sensing Market Weakness?

An investor should keep count of all valid distribution days during a Confirmed Uptrend. Successive distribution days imply a weakening market. But what threshold of distribution day count is enough to say the market is under pressure? A distribution day count of 2–3 is benign and usually normal in a Confirmed Uptrend. But when the count increases to 5–6, one should prepare to get his/her positions trimmed.

William O’Neil wrote in “How To Make Money In Stocks,” “After four or five days of definite distribution over any span of four or five weeks, the general market will almost always turn down.” When this happens, carefully assess each stock in your portfolio and reduce your exposure accordingly. And in some cases, it’s wise to get out completely. Market rallies do not go on forever. At some point, they will end. This usually happens when the market gets smacked with a heavy load of distribution days.

Understanding Distribution Day

The below example is for understanding. Do not relate it with current market. Currently we are in a Confirmed Uptrend. Distribution Day count is three

Related articles:

Webinar on How to Spot Market Tops? 

Still the No. 1  Stock Market Tip: Always Cut Your Losses Short

Also read our last week article:

Break the Stereotype; Buy High, Sell Higher

Posted on

Is Berger Paints A Long Term Leader A Good Buy Now ??

Berger Paints stock has cleared a 18-week, 18% deep Consolidation Base this week. Currently, the stock is trading around just -2% away from its ideal buy price of INR 823. The stock is offering investors an opportunity to get on board at the current price.

The stock ended the week on a bullish note. It closed 1.45% up on a 159% greater volume than the 10-week average. You want to see a strong close on heavy volume like this before initiating a position. That signals institutional buying. You would also want to see the same price volume momentum to continue in the coming weeks.

The key trend lines, 10 and 40-week moving averages are at a comfortable position. The current trends of both the averages are upward and the 10-week moving average is trending above the 40-week moving average. The current price of the stock is trading around 7.26% away from the 10-week moving average.

In the last twelve months, Berger Paints I has rallied nearly 62.3% as compared to 60.8% for the Nifty500. It has a Relative Strength Rating of51. We definitely would like to see improvement in the rating. At this point we are taking a step back and focusing on the RS Line.

The Relative Strength Line of the stock is offering a lot of encouragement to investors. It has been making good progress in the last four weeks. The overall long term trend of the line is also trending upward. If Berger Paints I can maintain this outperformance, it could make sense as a CANSLIM trade.

Berger Paints I stock has strong institutional support. The Accumulation/Distribution Rating of ‘A-‘ represents heavy institutional buying over the past few weeks. Although the number of institutions holding the stock dropped in the last quarter, the number of shares held by the institutions increased at the same time.

On the earnings front, Berger Paints I has an excellent EPS Rank of 94, which indicates consistency in earnings. The earnings and sales for the stock have grown by 12% and 5%, respectively over the past three years. Its 3-years earnings stability is 5, on a 0 to 99 scale (lower the better). Over the past five years, the earnings and sales for the stock have grown by 14% and 10%, respectively. The 5-years earnings stability is 14. The return on equity for the last reported year is 24%.

The stock belongs to the industry group of Chemicals-Paints. You would still want to see some improvement in the industry group rank for the group. The current industry group rank is 68. The current price of Berger Paints is -4% off from its 52-week high price and 77% above its 52-week low price.

The stock appears on our idea lists: Trend Template – 5 Months

Recent Article:

Garware Technical: A Long Term Leader of Apparel Cloth Mfg. Forming Higher Highs

Posted on

Break the Stereotype; Buy High, Sell Higher

“What seems too high in price and risky to the majority usually goes higher, and what seems low and cheap usually goes lower.” – William J. O’Neil

The ‘N’ in the CANSLIM strategy stands for either a ‘New Product,’ ‘New Management,’ ‘New High,’ or any other new factor, which could positively change the operating environment for the stock and ultimately drives its price into newer realms.

Contrary to conventional wisdom, buying low and selling high is not an easy way to make money in the stock market. In fact, it can be quite risky because in many cases, you’re buying damaged goods.

We would like to specially draw your attention to buying into new highs. Buying a stock when it is scaling new highs might seem strange and scary to many investors. About 98% of individual investors would never buy a stock that makes new highs. Buying a quality stock at a new high is buying into the emerging strength with a belief that it could prove to be the beginning of the next big move.

But, don’t buy every stock that makes a new high, make sure that the stock breaks out of a sound base pattern before it sails above the pivot, on a higher than the average volume. In addition, investing when the stock price is way too extended, say 5–7% or higher from its pivot is not ideal.

Traditionally, investors often believe that they are value investing, when they prefer to shop stocks near their 52-week lows. The idea of buying from a discount sale in a supermarket rarely applies while buying stocks. Stocks on the new-high list tend to go higher in price, while those on the new-low list tend to go lower. Good quality products are always expensive, so are the good quality stocks.

Don’t be afraid to buy a stock when it is showing supreme relative strength and sitting near highs. There is no shortage of precedents that show big market winners staging multiple breakouts during multiyear runs. Don’t be quick to say it is too late, especially if a compelling growth story is still intact.

For example, look at the chart of Central Depository Services (India). It advanced 70% in the last three months. Its ideal breakout and buy point was at an all-time high in February, and after breakout, it progressed higher making higher highs. By avoiding growth stock at all-time high with a proper base pattern and strong fundamental and technical profile, you are avoiding a multibagger stock.

Related articles:

Why the Buyer Demand Rating is a Key to Finding Great Stocks

CAN SLIM Investment Methodology

How a Rules-Based Investing System Helps?

Read our last week’s article :  Why Stocks Form a Base; Five Bullish Traits of a Healthy Base

Posted on

Is Sonata Software a Long Term Leader A Good Buy

Sonata Software stock is worth watching as the stock is forming a 6-week, 13% deep Flat Base. The current price is only 5% away from its ideal buy price of INR 634. Aggressive investors could use any tight area breakout inside the base as an opportunity to initiate a small position. A conservative approach may be to add the stock to your watchlist so that you are ready to pounce if it breaks out to the traditional entry point.

The key trend lines, 10 and 40-week moving averages are at a comfortable position. The current trends of both the averages are upward and the 10-week moving average is trending above the 40-week moving average. The current price of the stock is trading around 15.55% away from the 10-week moving average.

In the last twelve months, Sonata Software has rallied nearly 189.4% as compared to 59.6% for the Nifty500. It has a Relative Strength Rating of 84. We definitely would like see improvement in the rating. At this point we are taking a step back and focusing on the RS Line.

The Relative Strength Line of the stock is offering a lot of encouragement to investors. It has been making good progress in the last few weeks. The overall long term trend of the line is also trending upward. If Sonata Software can maintain this outperformance, it could make sense as a CANSLIM trade.

Another key part of the jigsaw is institutional sponsorship. Sonata Software has an Accumulation/Distribution Rating of ‘A’. This represents heavy institutional buying over the past few weeks. The number of institutional sponsors and shares held by the sponsors, both increased in the last reported quarter.

On the earnings front, Sonata Software has an excellent EPS Rank of 80, which indicates consistency in earnings. The earnings and sales for the stock have grown by 7% and 22%, respectively over the past three years. Its 3-years earnings stability is 10, on a 0 to 99 scale (lower the better). Over the past five years, the earnings and sales for the stock have grown by 13% and 17%, respectively. The 5-years earnings stability is 10. The return on equity for the last reported year is 31%.

The stock belongs to industry group of Computer-Tech Services. You would still want to see some improvement in the industry group rank for the group. The current industry group rank is 75. The current price of Sonata Software is 2% off from its 52-week high price and 241% above it 52-week low price.

The stock appears on our idea lists: Trend Template – 5 Months.

Recent Article:

Sterlite Technologies; Watch Out For This Computer Network Co As it Races North On Heavy Volume.

Posted on

Sterlite Technologies; Watch Out For This Computer Network Co As it Races North On Heavy Volume.

Sterlite Technologies stock has broken out of a 14-week, 28% deep Ascending Base 4-weeks ago. However, the stock is still worth watching as the current price is only 8% away from the ideal buy price of INR 238.

The key trend lines, 10 and 40-week moving averages are at a comfortable position. The current trends of both the averages are upward and the 10-week moving average is trending above the 40-week moving average. The current price of the stock is trading around 13.42 % away from the 10-week moving average.

In the last twelve months, Sterlite Technologies has rallied nearly 151.1% as compared to 59.6% for the Nifty500. It has a Relative Strength Rating of 67. We definitely would like see improvement in the rating. At this point we are taking a step back and focusing on the RS Line.

The Relative Strength Line of the stock is offering a lot of encouragement to investors. It has been making good progress in the last four weeks. The overall long term trend of the line is also trending upward. If Sterlite Technologies can maintain this outperformance, it could make sense as a CANSLIM trade.

Another key part of the jigsaw is institutional sponsorship. Sterlite Technologies has an Accumulation/Distribution Rating of ‘B+’. This represents heavy institutional buying over the past few weeks. The number of institutional sponsors and shares held by the sponsors, both increased in the last reported quarter.

On the earnings front, Sterlite Technologies has an excellent EPS Rank of 89, which indicates consistency in earnings. The sales for the stock have grown by 12% over the past three years; however the earnings growth remained muted at -19%. Its 3-years earnings stability is 34, on a 0 to 99 scale (lower the better). Over the past five years, the earnings and sales for the stock have grown by 16% and 23%, respectively. The 5-years earnings stability is 46. The return on equity for the last reported year is 14%.

The current price of Sterlite Technologies is -1% off from its 52-week high price and 178% above it 52-week low price. The stock belongs to industry group of Computer-Networking, which is exhibiting excellent strength in the current market environment. The current industry group rank is 19.

The stock appears on our idea lists: Trend Template – 5 Months.

Recent Articles :

Godrej Industries Stock Is Marching Towards 52-Week High