CANSLIM method - William O'Neil

This is a quick review of the CANSLIM method of stock selection or stock picking as described in the book by William O'Neil:
How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition


The interesting thing I found about this method is that it is neither pure fundamental nor technical analysis but a combination with elements of both. Here is a quick brief on who William is.

William J. O'Neil (born March 25, 1933) is an American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc. He is the author of the books How to Make Money in Stocks and 24 Essential Lessons for Investment Success and is the creator of the CAN SLIM investment strategy. He holds one of the highest performing track records in the stock market --- Wikipedia

Now on to the CAN-SLIM method. This article is not a book review, rather a summary of the CAN-SLIM method for quick reference for users of this blog.

C - Current quarter growth 30%- compare to last quarter, for four qtrs, sales growth. This indicates strong short term growth. Finding such a criteria for stock whose price has not shot up may be good as this may indicate a company which is overlooked and ready for appreciation.

A - Annual earnings growth 25% - last three years. Roe > 17%. Check earnings stability, i.e. this ensures that good earnings is not just a fluke, but is due to good business and can be sustained.

N - New things in company, products, management - fundamental. New highs off properly formed bases, such as stock price shooting up recently from a long inactive period.

S - Supply an demand. Low debt to equity. These are typical fundamental criteria. The first represent the core of any business for without a favourable supply and demand, the business would not survive. The second is fundamental on how the business is run in terms of debt level. Many large corporate failures can be traced to too high debt.

L - Laggards and leaders. Do not buy when price drop big, with big volume , even though look cheap. This will trap most amateur and even professionals like fund managers and so called fundamental investors. Get out of laggards if drop 8% or more.

I - Institution investors - buy stocks with a few institutional sponsor that have good performance, or more coming in. Avoid those with too big proportion held by institutions as this will lessen liquidity.

M - Market direction. Major top when small price up, large volume, big range. Market bottom begin with rally attempt which closes higher after day's decline. From fourth day, look for follow through with higher price and strong volume. After confirmed , buy quality stocks with strong sales and earnings . Also look for divergence in major indices and ratio of call to put options volumes.

A few more notes which I would try to remember for myself are:
- look for Cup handle pattern. This is when the stock price has not moved up or down for a long time and just recently starting to spike up.
- Buy when stock is going up, on increasing volume, not when going down.
- Buy companies with low debt to equity.

Roger Montgomery Intrinsic Value

http://blog.rogermontgomery.com/how-do-your-value-able-valuations-compare/

Technical Analysis - Summary of PSAR, Bollinger Bands, Triangles

Ref: http://ozstock.blogspot.com


This is a quick summary of 3 other methods of Technical Analysis. As usual, each method by itself is not as good as using a combination of methods.

PSAR - Parabolic Stop and Reverse
- only use in trending markets
- use as exit tool or trailing stop
- BUY - Price hits PSAR from below
- SELL - Price hits PSAR from above

Bollinger Bands
- Middle Band - 20 period moving average
- Upper Band - Middle Band + 2 standard deviations
- Lower Band - Middle Band - 2 standard deviations
- Use with Double Top of Double Bottom - need the first peak to be outside the Band and the second peak to be inside the band

Triangles
- ascending, descending, symmetrical
- breakout may be in either direction in all 3 types of triangles.
- enter when breakout
- stop loss set inside triangles

These indicators and a few others are shown in the example of the ASX 200 below. The conclusion is that there is no obvious trend of the ASX at the moment as the market is trading indecisive with not much direction.

Brief - PAG - PrimeAG Australia

This is going to be a very brief note about PrimeAG (PAG). Rcently PAG caught my attention because of the recent strong uptrend. I have been studying a few technical gurus (Gann, Weinstein),  methods on Technical Analysis and clearly the strong uptrend would be one reason to buy. See graph below.

However, although I may wish to go for a short term, technical play, I also glanced at the fundamentals. One of my recent indicators I followed, which I will use more of, is the ROE. I would be looking for ROE of at least 15% for long term play. For short term play, a smaller ROE will suffice.

However, PAG's fundamentals is this: ROE is almost Zero. It had made a loss recently, ie. negative earnings and profit. One of the only positive ratio is the book value of $1.89 (from CMC Markets). Based on this, I will make no further analysis for now.

One point more on the Technicals, the uptrend has not been strongly supported by heavy volume. If there was heavy volume, then the case based on technicals would be stronger.

Note to Self: avoid this stock unless I feel very very lucky.

Note to Self

5 Oct 2010

ESG - wait till go up 85-90c
STO - buy when rebound from 12.30 to 12.50
AMP - ROE 40.50 54.80 27.00 29.50, wait for technicals
TGA - sell when below 1.40
TIS - buy when breakout 25
CUV - sell when close under 19

TZL - wait for break above 50c
VLA - wait for break above 35c
POH - wait for break above 11c


CMC Market allows a simple filtering system.
- ROE > 15%
- Debt / Equity < 0.5
- Market Cap < 100,000, 000
- 5 yr avg annual return > 10%
- Net Profit > 10,000,000

the results from the filtering were:
TBR - Tribune Resources NL
TWD - Tamawood Limited

All Ord Triple Top Re-Confirmed, and Dow Jones does not resist

Source: http://ozstock.blogspot.com

Usually the charts are done at the end of the week to get the full weekly picture but since the dramatic drop over the last few days, the last point on these weekly charts end in the middle of the week.

In the last post, the All Ords were on the verge of confirming a triple top but the Dow did not show any similar patterns. For over the last month, the All Ords had been fighting the Triple Top and showed signs of successfully resisting a Triple Top plunge as it climbed up from the 4300 level. However, things changed in the last week and as of today, it seemed the market is plunging back down. In fact the closing of today has broken the previous month's low of 4325. The chart also shows that it has broken through an important Gann angle. At this point the signs are now quite strong for further downtrend.

In terms of the Dow Jones where previously, it was not near any support or resistance, the lastest chart shown here indicates that it is touching the Gann (brown) angle. The minor recovery over the last month followed by the subsequent downtrend provides strength to break this Gann angle. When a Gann angle is broken, the trend will continue in that direction until the next angle is found. The fundamentals of the world economy and sentiment also provide strength to the downside.

Whereas before the Dow and All Ords seem not to coincide with each other, the current downtrend is supported by both indices and may be a confirmation of strength in the current direction.

Coal Seam Gas companies

(taken from AOE's Acquisition Scheme Booklet)


Coal Seam Gas (CSG) has been of considerable interest over the last few years. It represents a new technology of producing gas. Over the recent years there has been various corporate takeovers of CSG explorer and developers (eg Sydney Gas, Sunshine Gas, Roma Petroleum) by bigger companies (eg BG Group, Shell, AGL).

The table below may serve as a quick guide as to what CSG companies are still available and hence possible investment opportunities. Note that currently, Arrow Energy has an acquisition offer. In terms of size by enterprise value, none of the remaining CSG are close to Arrow Energy.

Most of the remaining companies are explorer / developer. Only Molopo is producing gas from its field in the Bowen Basin in Queensland. Note that the largest field for Molopo is in Canada, hence the 2P and 3P numbers from overseas are not included here. It also has tenements in South Africa.

From the 2P and 3P resources we see that many of the explorers have quite small reserves. The only other company with significant reserves besides Arrow Energy and Molopo would be Eastern Star Gas.

Just a note that:
1P = proven
2P = proven and probable
3P = proven and probable and possible.

Hence those companies with a very high 3P and relatively small 2P means that the majority of the reserves are only "possible". These are the companies with higher risk compared to one with smaller percentage of Possible reserves. In table, in the Proven and Possible %, the lower percentage the better.