Advanced CAN SLIM ™ IBD Meet-Up Training Series Module-4

1. Advanced CAN SLIM™IBD Meet-Up Training SeriesModule-4 Mike Scott Presentation copy can be found at http://www.meetup.com/thousandoaksibd/

2. Module-1, Introduction to CANSLIM ™ Market Generalities CANSLIM™ defined Preferred stocks to buy Cup and Handle Base Double Bottom Base Module-2, More Bases Ascending Base Flat Base High-Tight Flag Cup without handle Base Base on Base Base stage counting Module-4, Portfolio Management Buy rules Managing the portfolio Market Tops and Bottoms Module-5, When the run-up is over More on Faulty Bases Topping Patterns Sell Rules Module-6 Investor psychology Short Selling Tools and Routines New Module 3 Alternate Buy Points 3-Weeks Tight Pocket Pivot 12-of-15 up MA bounce Short Stroke

3. Portfolio Basics • Big money is made by concentration rather than diversifying • It is important to develop individual rules that prevent you from getting shaken out of true leaders • Develop rules to cater to your own personal weaknesses found through post analysis • Hone in on the market leader, make sure you have the most amount of money in that stock • Hold the best stocks for as long as possible • First movers are the leaders • Getting used to margin can be a key skill

4. The importance of rules • Follow rules because they work • If for no other reason, follow the rules so that you do not undermine your own confidence • Be careful tweaking CANSLIM™ rules, they are not our rules • There is plenty of room for style differences The number one mistake I find people making is not entering the market at the start of a rally. I see this very often.

5. Do I always follow the rules? I listen to what the market is saying and I make adjustments within my rules • I suspend add on buys in difficult markets (this is one of my rules) • Sometimes I do not buy breakouts but only alternative entry points (this is one of my rules) • I usually wait for sound bases to form before I decide to buy on day one of a rally • Some stocks breakout before a FTD, sometimes I try them

6. Who are you listening to? • What are the sources of your information? • Is there system like yours? Can you apply their information to your system? • Are they eternally pessimistic or overly optimistic? • How do you react? • Can you enter the market when the news is ALL BAD? Some people should not listen to market news at all but just watch price and volume

7. Basic Buy Rules • Take a position on “day one” of a rally confirmation The true leaders in an overall market rally break out first. Confirmation means a follow-through day and stocks breaking out of sound bases, learn to recognize faulty set ups • Buy equal dollar amounts Initial positions will be equal in dollar value, adding to positions later can concentrate value in the top performing stocks • Scale into positions Buy stocks gradually as they prove themselves • Automatic buys of 50%, 30%, 20% • You may treat each buy individually relative to sell rules • This rule may be suspended if the current rally is deemed not robust. In this case half positions will be taken with no automatic follow-on buying. • Use Secondary Position Entries. Stocks may be added to or purchased on secondary entry positions. • Three-weeks tight, Moving average bounces, Pocket Pivot, Short stroke, 12 of 15 days up) • Stop losses should be tighter, 3-5% and less than full sized positions should be taken. These purchases are reserved for the very best candidates.

8. How Many Stocks Should You Own?

9. Position Size Example • Portfolio Value = $20K (Cash Account) • Own ~4 Stocks • Each full position = $20K / 4 = $5K • 1st Buy = 50% of $5K = $2.5K • 2nd Buy (up 2-2.5%) = 30-35% of $5K = $1.5K • 3rd Buy (up 4-5%) = 15-20% of $5K = $1.0K

10. Position Size Example(Margin Account) • Portfolio Value = $250K • Buying power on margin is $500K • Own ~5 Stocks • Each full position = $500K / 5 = $100K • 1st Buy = 50% of $100K = $50K • 2nd Buy (up 2-2.5%) = 30-35% of $100K = $30K • 3rd Buy (up 4-5%) = 15-20% of $50K= $20K By the time you buy 3 full positions you will be on margin

11. Managing the Portfolio • Normal profit objective = 20-25% • The profit objective is measured from the classical buy point from one of the standard bases • Allow 8 weeks for this objective to be met unless you need the money to feed your winners • Hold rockets longer • Hold institutional grade stocks that go up 20% in three weeks or less for at least 8 weeks • Concentrate in the stronger stocks, sell laggards in order to add to portfolio

12. Building a Position • Add shares when there are signs of support • When you add shares, add fewer shares than your previous purchase • One conservative measure is to keep your average cost 25% below current price • I almost never achieve this • If recently added shares drop 7%, sell those shares • Later, if you have an opportunity to buy, buy those shares back, plus some more…

13. Follow-up Buying Primary buy at the pivot, 1st or 2nd stage base • Automatic follow-up buys @ +2-2.5% and +4-5%, no buying > 5% • After another proper base forms • Pullbacks to the 10-week line • Sometimes can use other averages • After “Three-weeks tight” • Pocket Pivot • Unusual strength 12 of 15 days up • Shakeout + 3 • Short Stroke Never add at a lower price, do not average down

14. Signs of Support Confidence to add shares • Constructive price and volume action • Holding logical support areas • Five weeks or more in a row up • 30% of big winners have five weeks in a row up in the right side of their base

15. Signs of Weakness • New Highs on low volume • Breaking a trend line • Not holding logical support areas • 2-Up, 2-Down to a new high

16. YHOO Weekly 2003 Chart Not Split Corrected for 2:1 split Even Though YHOO was a leader in the prior bull market it ran up again

17. YHOO Daily

18. YHOO Summary

19. Add at Pull Back to 10-Week or 50-Day MA RIMM Breaks out of a 24 week base-on-base or flat base and pulls back to the 10-week line twice Never add when the price is lower than your last buy (don’t average down) You may start a small position at these places Add Add Initial Buy Add on buys are 10-30% of position

20. 5 Weeks In a Row Up OVTI 30% of the big winners have five or more weeks up in a row forming the right side of its base 5 Weeks close up

21. OVTI Weekly OVTI was a small cap--didn't participate in the prior bull Chart not corrected for 2:1 split

22. OVTI Daily Chart not corrected for 2:1 Split

23. OVTI Summary

24. Follow Through Day 9/1/10 After a decline look for the market to attempt to rally. A follow through day can occur on the 4th or later day of a rally attempt Major index must close up significantly* on volume higher than the day before Often 1.2-2% range depending on market volatility 11.3% E Big Reversal Day-1 Lowest intraday

25. IBD 9/1/2001

26. September 1, 2010 IBD

27. 8/26/2010 Thursday EGO FIRE 8/27/2010 Friday Eureka! RVBD TSL NZ 8/30/2010 Monday OVTI LOGM SXCI 8/31/2010 Tuesday ARMH BVN ANV 9/1/2010 Wednesday FTD ABV CMG LZ IVN

28. CMG Weekly

29. CMG Daily

30. Ford

31. Next time we will address • How stocks top • Sell rules • Market tops

32. Pull Back to 20-day Moving Average Add Buy Careful, no volume!

33. What to do after you are in a Position?