ibd can slim® investing bear market rally: is it possible to win? …files.meetup.com/81154/mike...

MANAGING IN ADVERSITY

IBD CAN SLIM® Investing

in a S

evereBear Market Rally:

Is It Possible to Win?

IBD

Meetu

p

1© 2008 Analysis Copyright Mike Kinkead ©

Data Copyright Investor’s Business Daily. All Rights Reserved.


IBD

Meetu

p

Bosto

n, M

A

Febru

ary

25, 2009

Mik

e K

inkead

[email protected]

617.901.1784


or Lookin

g for

Love (20%

+ W

inners

)

in A

ll the W

rong P

laces…

IBD

Meetu

p




IBD

Meetu

p

Bosto

n, M

A

Febru

ary

25, 2009

Mik

e K

inkead

[email protected]

617.901.1784


This presentation is for educational

purposes only and is not intended to be a

recommendation to buy or sell specific



MANAGING IN ADVERSITY recommendation to buy or sell specific

securities.

MANAGING IN ADVERSITYC

opyri

ght &

anoth

er

dis

cla

imer

�© 2009 Raw data used in this analysis is the sole

property of William J. O’Neil + Co., Inc, Investor’s

Business Daily and investors.com.

�© 2009 Analysis and presentation form

ats used in this




�© 2009 Analysis and presentation form

ats used in this

presentation are copyrighted by Mike Kinkead.

�The conclusions expressed in this presentation are

reached solely by M

ike Kinkead and in no way

represent an endorsement by IBD.

MANAGING IN ADVERSITYSome of IBD’s 20 Rules

for Investm

ent Success…




MANAGING IN ADVERSITY…are flipped upside down during rallies

in a s

evere

bearmarket!




MANAGING IN ADVERSITYQ

uestions to a

nsw

er

�What is the norm

al process to identify and buy CAN

SLIM

stocks? Brief review with highlights only.

�What are the characteristics of stocks that gained 20%

or more during the latest rally?

�Are they traditional CAN SLIM

® stocks?

�Would we have found these stocks on our Watch List

at the beginning of the rally on 12.2.08?




at the beginning of the rally on 12.2.08?

�How do IBD’s 20 Rules for Investm

ent Success change

during rallies in a severe bear market? Finding stocks is

the focus.

�What types of chart patterns work for buying now?

�What stocks in what O’Neil Industry Groups have very

strong fundamentals now?

�What’s on our current Watch List? Is there a stock pick?

MANAGING IN ADVERSITY What is the norm

al process to identify

and buy IBD’s CAN SLIM® stocks?




MANAGING IN ADVERSITYIBD’s CAN SLIM® process to find

stocks to buy in a n

orm

almarket




MANAGING IN ADVERSITYFundamental factors* that create winners

and where to find this data in IBD

�Earnings growth: IBD’s EPS rating (70 and up)

�Positive sales and earnings m

omentum (acceleration):

�DGO weekly chart (use your eyeball)

�DGO Custom Screen W

izard

�Increasing sales growth: IBD’s SMR Rating

10

© 2008 Analysis Copyright Mike Kinkead ©



�Increasing sales growth: IBD’s SMR Rating

�Expanding operating m

argins: IBD’s SMR Rating

�High return on equity: IBD’s SMR Rating

�Positive earnings surprises: Bolded IBD EARNUPs

�Strong cash flow: DGO weekly chart (120% or more x eps)

�Positive earnings revisions by analysts: DGO weekly chart

* From The Little Book that Makes You Richby Louis Navellier (except sales acceleration).


IBD’s SMR Rating means that

earnings growth is more easily s

usta

inable

IBD’s SMR Rating components and an important nuance:

�Continued sales growth

12




�High (and increasing) profit margins

�ROE of 17% or more but must adjust for debt as %

equity

�A high percentage of debt lowers ROE as reported on

the DGO weekly charts


Rallies in a bear market

versus a severe bear market

In a norm

al bear � ��3.19.08 to 5.19.08

13



MANAGING IN ADVERSITY In a norm

al bear � ��3.19.08 to 5.19.08

In a severe bear � ��

12.2.08 to 1.12.09

MANAGING IN ADVERSITYPrior IBD Meetup Talk

March, 2008 rally: NASDAQ up 13% to peak

14




MANAGING IN ADVERSITYStocks still go up during rallies

in a severe bear market but…

15




MANAGING IN ADVERSITYRally December, 2008 to early 2009:

NASDAQ up 6% to correction (14% to peak) 16




MANAGING IN ADVERSITYWhat did the main market indices do

during this severe bear market rally?

17




MANAGING IN ADVERSITY What are the characteristics of stocks

that gained 20% or more

during the latest rally?

18




during the latest rally?

MANAGING IN ADVERSITYWhat was the approach to analyze

CAN SLIM® stocks during this rally?

�Start with IBD CAN SLIM

stocks that have strong

fundamentals:

�EPS Rating of at least 70 (catches turnarounds)

�SMR Rating of A or B

�In a severe bear market, a lot of growth stocks are

beaten down and way below their 52-week highs:

19




beaten down and way below their 52-week highs:

�Elephants are dumping these stocks

�90% of bases form

during m

arket corrections

�Bases are deep in severe bear markets

�Therefore, make no assumptions about CAN SLIM

®

technicals and m

omentum m

easures used by IBD.

�Use process of “discovery in data” to reveal the truth

MANAGING IN ADVERSITYWhat universe of stocks

was analyzed during the rally?

20




MANAGING IN ADVERSITYHow did all growth stocks

perform

during the rally?

21




MANAGING IN ADVERSITYHow did CAN SLIM® stocks

perform

during the rally?

22




MANAGING IN ADVERSITYCAN SLIM® stocks under $10

had much better returns!

23




MANAGING IN ADVERSITYHow did non-CAN SLIM® stocks

perform

during the rally?

24




MANAGING IN ADVERSITY1 in 5 chance of finding 20%+ winners…

CAN SLIM® or otherwise…in this rally

25




MANAGING IN ADVERSITYOdds of finding winning CAN SLIM® stocks

are only 1 in 14 across all prices

26




MANAGING IN ADVERSITYWhat about IBD’s® momentum

and institutional demand measures?



fundamentals:



27




�During this rally in a severe bear market, test:

�Relative Strength

�O’Neil Industry Groups Relative Strength

�IBD’s Accumulation/Distribution m

easure

�Use process of “discovery in data” to reveal the truth

MANAGING IN ADVERSITYLowRS, < $10 CAN SLIM® stocks

beat the market by 5X!

28




MANAGING IN ADVERSITYUsing Acc/Dis of A or B will eliminate

73% of $10 up high gainers

29




MANAGING IN ADVERSITYUsing Acc/Dis of A or B will eliminate

70% of < $10 high gainers

30




MANAGING IN ADVERSITYCAN SLIM® stocks < $10 with Acc/Dis

Ratings of D

and E

are the BIG winners!

31




MANAGING IN ADVERSITYO’Neil Industry Group Ranks 44 to 96

have slight edge for CAN SLIM stocks < $10 3





So…how do IBD’s

20 Rules of Investm

ent Success

change* during rallies

in a severe bear market?

33




Focus is on rules to find winner stocks

* Based on analyzing 1 rally…

MANAGING IN ADVERSITYNew rules for finding winner stocks

in a severe bear market rally

34





Let’s add one more important

fundamental measure available in the

IBD newspaper

35




IBD newspaper

MANAGING IN ADVERSITYEarnings News in IBD � ��

EARNUPs:

earnings beat expectations

36




MANAGING IN ADVERSITYEarnings News in IBD 2.17.09:

Panera Bread (PNRA) in bold

37




MANAGING IN ADVERSITYHow did the EARNUPs* perform

during the rally?

38




*EARNUPs are bolded line stocks in IBD’s Earnings News between 10.1.08 and 1.12.09.

MANAGING IN ADVERSITYWhat are the characteristics

of the 34 20+% EARNUP winners?

Very strong fundamentals as always:

�IBD EPS Rating of 70 or higher

�IBD SMR Rating of A or B

�Plus the added dimension of a positive earnings

surprise

39




surprise

Momentum and the elephants:

�50% (17 of 34) has an IBD RS of 40 or less

�50% (17 of 34) were in the bottom half of O’Neil Industry

Group Ranks on 11.28.09 andon 1.12.09

�38% (13 of 34) has an IBD Acc/Dis of D or E

MANAGING IN ADVERSITYOdds are low but the strong

but downtrodden triumph…

40





A note about the

norm

ally powerful investors.com

combo Screens of the Day

41




combo Screens of the Day


What types of chart patterns

work now?

42




MANAGING IN ADVERSITYWhat chart rules and patterns work?

�Focus on CAN SLIM

quality stocks at or within 15% of new

52-week high???

�Where? Not many available.

�Only 16 out of all 6,028 stocks hit new highs yesterday

�Identify stocks with a 30% prior uptrend and an acceptable

consolidation pattern (eg: double bottom)???

43



MANAGING IN ADVERSITY consolidation pattern (eg: double bottom)???

�Few Black Border stocks in acceptable patterns

�Find stocks at the bottom of a consolidation pattern �

use

rules to identify a change in trend from down to up.

�See The M

arket Guys by AJ Monte and Rick Swope

�And the tools of the collective Boston IBD M

eetup group


What stocks

in what O’Neil Industry Groups

have very strong fundamentals now?

44



MANAGING IN ADVERSITY have very strong fundamentals now?

MANAGING IN ADVERSITYO’Neil Industry Groups with at

least 4 3D earnings growth stocks

45




MANAGING IN ADVERSITYWhat is the approach to identify

stocks for our current Watch List?

�What is growing?



fundamentals:



Triple digit (3D) earnings growth with upside

46




�Triple digit (3D) earnings growth with upside

surprises (EARNUPs) since 1.2.09

�Look in O’Neil Industry Groups with high 3D earners

�In the next rally during this severe bear market:

�Contest: stocks with an IBD RS of 1 to 40 versus 80+

�Include stocks in all O’Neil Industry Groups

�Include stocks with an IBD Acc/Dis Rating of D and E


One special stock pick � ��

ATHN

* Warning: pending Earnings Release this Friday

47




* Warning: pending Earnings Release this Friday

before market opens.

MANAGING IN ADVERSITYFinal thoughts-Part 1 of 2

�Using IBD’s fundamental measures of financial strength,

there are still some excellent CAN SLIM

stocks.

�However, in today’s severe bear market, there are very

few IBD CAN SLIM

stocks that are in proper chart

patterns and at or within 15% of a new 52-week high.

�Even as IBD’s The Big Picture calls a new rally in this

48



MANAGING IN ADVERSITY �Even as IBD’s The Big Picture calls a new rally in this

severe bear market, traditional CAN SLIM

stocks are not

delivering the gains that are the hallm

ark of IBD’s

investing approach.

�Per IBD’s continuing advice in The Big Picture, the

safest alternative is to stay in cash.

MANAGING IN ADVERSITYFinal thoughts-Part 2 of 2

�There is another, m

ore risky investing alternative based

on the analysis presented tonight.

�The CAN SLIM

stocks with strong fundamentals have

been beaten down in this market and have low prices,

low IBD RS and Accumulation/Distribution Ratings and

often reside in the bottom half of O’Neil’s 197 Industry

Groups. Some of these stocks, especially those under

49




Groups. Some of these stocks, especially those under

$10, saw strong gains during rallies in this bear market.

�The screening rules to find these stocks break the

IBD Rules for Investm

ent Success.

�For the adventurous investor, the screens shown

tonight, coupled with a change of trend pattern on daily

and weekly charts, offer buying opportunities.

�This alternative approach has m

uch lower odds of

successand is not for the faint of heart or wallet.


Thank Y

ou!

�Mike Kinkead

�[email protected]

�617.901.1784

50




�CAN SLIM®, IBD® and DGO™ (Daily Graphs Online) are

trademarks of Investor’s Business Daily and W

illiam O’Neil + Co

Incorporated.

ibd can slim® investing bear market rally: is it possible to win? …files.meetup.com/81154/mike...

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