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IBD Meetup

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IBD Meetup

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  1. IBD Meetup Putting it all together Organizers – Tom Ellis and Lee Tanner Creating a Watch list - Presented By Tom Ellis Petaluma, CA September 12, 2012 7:00 – 9:00 PM

  2. We Are Amateur VolunteersNon-Professionals • We are not offering Investing Advice. • Not Recommending Any Stocks. • Not Selling Anything. • No Affiliation with IBD. • All investing has substantial risks. • You can suffer huge losses.

  3. Making a watch list “You should be looking for stocks with High Earnings, High Return on Equity and High Relative Strength.” -William J. O’Neil

  4. Making a watch list • All of the tools we use to build our watchlist are not premium tools. All you need is access to IBD’s website. • In order to make a watch list we need to come up with a list of stocks that have High Earnings, High Return on Equity or Margins, and High Relative Strength. • These stocks need to be near a buy point and we must be ready and have confidence that we have selected well. • The watch list must contain no more than 7-8 stocks. We want the best 7-8 stocks out of the 8,000 stocks that are trading.

  5. Making a watch list Study, Learn and Make Plans for 2 - 6 • Buy at Right Time and Right Way • Market Up Trend • Base Breakouts • Scale-In (Pyramid) • Only off Watch List 1 2 3 Make A CAN SLIM Watch List Write Rules & Learn Enough to Follow Them Pick Only The Very Best Stocks Weekly Watch List Routine • Manage Portfolio • Hold Good Stocks • Practice Patience • Add to Best Stocks • ID Super Stocks • Margin Use • Review Results • Keep Good Records • Careful Review • Honest Appraisal • Learn from Experience 6 5 4 • Sell Just Right • Down 7% to 8% • Up 25% - Most • Sell Rules – for the Super Stocks Post Analysis Saving Watch for Post Analysis

  6. Making a watch list – Main Bullet Points Page 1 • Starting with a good screen or list. We’ll use the IBD 50 for now. • Add columns to our list to make notes and remove stocks we don’t want to buy. • Include only stocks with Top Fundamentals. Remove Stocks that don’t have High Earnings and High Return on Equity (or Pre Tax Margins). • See if the stocks on the list are near abuy point. • Only include stocks when they are near a buy point in a primary chart pattern. • If a stock is more than 5% past a buy point do not include the stock on your watchlist.

  7. Making a watch list – Main Bullet Points Page 2 • Look more closely at these stocks that are near buy points to decide whether we really want to own them. • Review additional fundamental factors included in the IBD 50 download and remove some stocks with major flaws. • Review Stock Checkup. • Less than 3 flaws is very good. • Greater than or equal to 4 flaws and less than or equal to 7 flaws is average. • Greater than 8 flaws is poor. • Looking at the chart more closely. • Is it a first or 2nd stage base? • Is the Relative Strength good enough for me to want to own it? • Is the Pattern Classic or sound? • Is the Base long enough? • Is the base depth correct?

  8. Making a watch list • Download IBD 50 list

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  10. Making a watch list • Save file to your hard drive. Change Type from Web to Excel Workbook.

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  12. Making a watch list – Main Bullet Points Page 1 • Starting with a good screen or list. We’ll use the IBD 50 for now. • Add columns to our list to make notes and remove stocks we don’t want to buy. • Include only stocks with Top Fundamentals. Remove Stocks that don’t have High Earnings and High Return on Equity (or Pre Tax Margins). • See if the stocks on the list are near abuy point. • Only include stocks when they are near a buy point in a primary chart pattern. • If a stock is more than 5% past a buy point do not include the stock on your watchlist.

  13. Making a watch list – Main Bullet Points Page 2 • Look more closely at these stocks that are near buy points to decide whether we really want to own them. • Review additional fundamental factors included in the IBD 50 download and remove some stocks with major flaws. • Review Stock Checkup. • Less than 3 flaws is very good. • Greater than or equal to 4 flaws and less than or equal to 7 flaws is average. • Greater than 8 flaws is poor. • Looking at the chart more closely. • Is it a first or 2nd stage base? • Is the Relative Strength good enough for me to want to own it? • Is the Pattern Classic or sound? • Is the Base long enough? • Is the base depth correct?

  14. Making a watch list • Go to http://www.meetup.com/petalumaibd/ • Under the more tab go to files and download the file called “Weekly Watchlist”. Save this file to your hard drive. • Copy columns A-P from the most recent tab in the “Weekly Watchlist” and Insert the copied columns into the IBD 50 list you just downloaded. Insert these columns before Column A.

  15. Making a watch list • Copy these columns (A-P) from the Weekly Watchlist and insert into your IBD 50 download. To do this, highlight the columns and right click while they are highlighted.

  16. Making a watch list • Insert Copied Columns here. If you highlight column A then right click with the mouse button you will see this menu.

  17. Making a watch list • Note that only some stocks have a “Y” in Column H. • This Expression includes High Earning and High ROE Plus PreTax Margins. See next slide for details. • =IF(AND(G15>=30,D15>=20),"Y",IF(AND(G15>=20,D15>=50),"Y",IF(AND(G15>=10,D15>=100),"Y",""))) • Clear any values from Columns I10 through Column P59.

  18. Making a watch list – Main Bullet Points Page 1 • Starting with a good screen or list. We’ll use the IBD 50 for now. • Add columns to our list to make notes and remove stocks we don’t want to buy. • Include only stocks with Top Fundamentals. Remove Stocks that don’t have High Earnings and High Return on Equity (or Pre Tax Margins). • See if the stocks on the list are near abuy point. • Only include stocks when they are near a buy point in a primary chart pattern. • If a stock is more than 5% past a buy point do not include the stock on your watchlist.

  19. Making a watch list – Main Bullet Points Page 2 • Look more closely at these stocks that are near buy points to decide whether we really want to own them. • Review additional fundamental factors included in the IBD 50 download and remove some stocks with major flaws. • Review Stock Checkup. • Less than 3 flaws is very good. • Greater than or equal to 4 flaws and less than or equal to 7 flaws is average. • Greater than 8 flaws is poor. • Looking at the chart more closely. • Is it a first or 2nd stage base? • Is the Relative Strength good enough for me to want to own it? • Is the Pattern Classic or sound? • Is the Base long enough? • Is the base depth correct?

  20. Making a watch list • There are a few reasons we want these extra columns. • The first filter we are going to apply to the list is to only look at stocks that have “High Earnings” and “High Return on Equity Plus Pre-Tax Margins.” I use the most recent quarterly earnings increase (C) for the earnings. I add the Annual Return on Equity and Annual Pre-Tax Margins together for the ROE PTM number. In his book HTMMIS O”Neil suggests selecting stocks with a high Return on Equity in the “A” section. In his advanced seminars he ammends this statement and says High Return on Equity or High Pre Tax Margins. We lump them together for our filter. • The requirement to pass this filter is • > 30 ROE PTM and > 20 EPS or • > 20 ROE PTM and > 50 EPS or • > 10 ROE PTM and > 100 EPS • Other reasons for the extra columns include: • Add more filters later • See some important data more clearly • Make notes we can refer back to when trading • Make notes we can refer to when trading during the upcoming week. +

  21. Making a watch list • Apply a filter to Row H so you only see High EPS and High ROE Stocks. By Unchecking the Blank Box you will select the High EPS and High ROE PTM Stocks.

  22. Making a watch list • Notice in Row H that the only stocks that are shown have a Y in Row D. Now we have a list of all the IBD 50 stocks that have High ROE and High EPS. We are ready to begin our work. • This takes about 5 minutes to get to this point.

  23. Making a watch list – Main Bullet Points Page 1 • Starting with a good screen or list. We’ll use the IBD 50 for now. • Add columns to our list to make notes and remove stocks we don’t want to buy. • Include only stocks with Top Fundamentals. Remove Stocks that don’t have High Earnings and High Return on Equity (or Pre Tax Margins). • See if the stocks on the list are near abuy point. • Only include stocks when they are near a buy point in a primary chart pattern. • If a stock is more than 5% past a buy point do not include the stock on your watchlist.

  24. Making a watch list – Main Bullet Points Page 2 • Look more closely at these stocks that are near buy points to decide whether we really want to own them. • Review additional fundamental factors included in the IBD 50 download and remove some stocks with major flaws. • Review Stock Checkup. • Less than 3 flaws is very good. • Greater than or equal to 4 flaws and less than or equal to 7 flaws is average. • Greater than 8 flaws is poor. • Looking at the chart more closely. • Is it a first or 2nd stage base? • Is the Relative Strength good enough for me to want to own it? • Is the Pattern Classic or sound? • Is the Base long enough? • Is the base depth correct?

  25. Making a watchlist • We now want to look to see if the stock is near a buy point. Since many people who attend these meetups don’t have a lot of experience in identifying chart patterns, we’ll rely for now on the editorial staff at IBD. Well look at either the print edition of the Monday paper or a pdf, which can be downloaded from the website.

  26. Making a watchlist • Go through each stock on this list. See if the stock is in a buyable base. Go ahead and include stocks that are up to 5% extended. For now don’t worry about the base stage or whether the base is productive or not. We are trying to get a smaller list of stocks to look more closely at. • If a stock is in a buyable base put a Y in column I of your IBD 50 list.

  27. Making a watch list • Let’s look at our first stock on the list. Our first candidate is Solar Winds. • Since we only buy stocks that are in primary chart patterns we will not add SWI to the smaller list of stocks we will look more closely at. • Let’s again review what type of patterns we establish initial positions in. What is an add on entry? What is a tight pattern? A 3, 4, or 5 weeks tight pattern is a secondary chart pattern. If I already had a position this would be terrific. For now I need to follow my rules and only buy the primary chart patters. Only 4% above buy point, good.

  28. Making a watch list Chart School and Pattern Recognition - Review • Primary Chart Patterns • Many CANSMLIM investors use primary chart patterns to initiate an initial position in a stock. • These are the entries that are the easiest to identify, take a long time to develop, are easy to enter, and offer the highest probability of success. • Secondary Chart Patterns • Many CAN SLIM investors use secondary chart patterns to add shares to an existing position in a stock. • These are more difficult to properly interpret, develop more quickly, are more difficult to enter properly, and offer a lower probability of success.

  29. Making a watch list Chart School and Pattern Recognition - Review • Primary Chart Patterns • Cup with or without Handle - Most Important Pattern • 7 Weeks Minimum • 20-30% Maximum Depth, up to 50% in Bear Markets • Double Bottom – Very Important Pattern • 7 Weeks Minimum • 35% Depth, up to 50% in Bear Markets • Flat Base – Very Important Pattern • 5 Weeks Minimum • 15% Maximum Depth • Square Box • 4 Weeks Minimum • 15% Maximum Depth • Saucer with Handle • 7 Weeks Minimum • Usually more shallow than cup and more spread out • 12-20% Maximum Depth, up to 30% in Bear Markets

  30. Making a watch list Chart School and Pattern Recognition - Review • Primary Chart Patterns continued • Ascending Base • 9-16 Weeks • 10%-20% Depth for each pullback • High Tight Flag • Flagpole • Stock usually doubles in price (100 to 120%) • Length is typically 4 to 8 weeks • Flag • Corrects no more than 10-25% • Length is usually 3-5 weeks • Shakeout Plus Three (Similar to Double Bottom). • 7 Weeks Minimum • 35% Depth, up to 50% in Bear Markets • IPO Base • 3-4 Week Minimum • Usually corrects no more than 15-30% • Initial Base • 20-30% Uptrend not necesarily required.

  31. Making a watch list Chart School and Pattern Recognition - Review • Secondary Chart Patterns - Traditional • Correction and Rebound from 50 Day Moving Average • Three Weeks or more Tight • Short Stroke • Secondary Chart Patterns – Non Traditional to be reviewed at a later date • 12 of 15 days Up • Confluence of 10, 21, 50, and 200 Day Moving Averages. • Momentum Gap • Stock Corrects 10% • Support at the 10 DMA • Daily or Weekly Shakeouts • Pocket Pivot

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  34. Making a watch list The words are not clear but it does appear that ALXN is in a base. We’ll call it a buyable base for now and take a closer look at it later. It is 6 weeks long and may be a flat base.

  35. Making a watch list Since this is the first stock that I can add buy, I’ll go over to my spreadsheet and put a “Y” in Column I for ALXN.

  36. Making a watch list Apple is 10% above a recent buy point. We generally only include stocks that are within 5% of their buy points.

  37. Making a watch list ALGN is less than 5% above a recent buy point.

  38. Making a watch list If I already had a position this would be terrific. For now I need to follow my rules and only buy the primary chart patters. What is an add on entry? What is a tight pattern? A 3, 4, or 5 weeks tight pattern is a secondary chart pattern.

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  42. Making a watch list • Below 10 Week. Don’t include for now.

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