CANSLIM STRTEGY

C: Current quarterly earnings per share (EPS) have increased sharply from the same quarter in the prior year. Generally, investors using CANSLIM want EPS growth of over 20%, but the higher the better. A: Annual earnings increases over the last five years. Again, annual EPS growth should ideally be in excess of 20% over the last three to five years. N: New products, management, or positive new events that push the company's stock to new highs. This type of headline news can cause short-term excitement, propelling a surge of optimism within the market and subsequent price appreciation. S: Scarce supply coupled with a strong appetite for a stock creates excess demand and an environment in which share prices can soar. Companies acquiring (re-purchasing) their own stock reduces market supply and can indicate an expectation of increased demand along with insider confidence in the firm. L: Laggard stocks are preferred within the same industry. Use the relative strength index (RSI) as a guide. The RSI is a momentum indicator that measures the magnitude of price changes to determine whether the price of a stock or asset is overbought or oversold. The RSI ranges from zero to 100. An RSI reading below 30 suggests that the stock is oversold and could be undervalued—creating a buying opportunity (bullish). An RSI reading of above 70 signifies that a stock could be overbought or overvalued and could be a chance to sell (bearish). I: Pick stocks that have institutional sponsorship by a few institutions with recent above-average performance. For example, this could be a recently public company, still supported by a small handful of well-known private equity firms. Be cautious of stocks that are over-owned by institutions as you want to get in before the big money is fully invested. M - Determine market direction by reviewing market averages daily. A market average measures the overall price level of a given market, as defined by a specified group of stocks, such as the Dow Jones Industrial Average. CANSLIM stocks tend to be over-performers in bull markets.

by Ankit