The “M” in CANSLIM

In one of the best investment books of all time, "How to Make Money in Stocks," author William O'Neil outlines his "CANSLIM" method for identifying stock market winners.

If you haven’t read the book, we recommend you go out and buy it TODAY!

We have been thinking about O'Neil and CANSLIM recently due to the sell-off in the stock market.

The “M” in the acronym stands for “Market.” O'Neil emphasizes the importance of understanding the stock market's direction when trading.

If the stock market is in a BULL MARKET uptrend, you should be trading differently than when it is in a BEAR MARKET downtrend.

With the recent pullback in the market and the carnage in the BEST stocks of the first half of 2024 – what do YOU think is the current direction of the stock market? Bull or Bear?

If you follow us on social media, you know OUR answer!

We think we continue to be in an intermediate-term uptrend in the stock market.

Why do we continue to have this confidence?

First, we know that market through time TREND. This means that they don’t quickly move from one phase to another.

It may feel like it is when the stock market is selling off, but that is not the case.

The problem is that psychologically, even a slight loss (single digits) can feel like a much more significant loss. Remember that negative stimuli impact us much more physiologically than positive stimuli.

We don't just go from a BULL MARKET uptrend to a BEAR MARKET downtrend without a significant period of time and volatile churn.

Just weeks ago, almost every stock market index was at all-time highs. This may be the start of an actual trend change, but we will need to see much more evidence before we are convinced.

It would be historically unprecedented to go from those recent highs across the stock market and right into a full BEAR MARKET.

Second, the current pullback is very normal.

Here is an excellent graphic from one of our favorite analysts, Ryan Detrick of Carson Group. He recently posted it on X/Twitter…

He makes a simple point—having high stock market pullbacks is normal. In the last seventy-plus years, we have seen, on average, almost three and a half pullbacks of at least -5 % in the S&P 500.

As of Friday's close, the current pullback in the S&P 500 is -5.7% and has lasted 13 trading days. The pullback in April was -5.5% and lasted 14 trading days.

For weeks, we have been discussing some of the underlying technical signals that made this stock market so strong. Many of those had to do with the big expansion in breadth.

We are not predicting that it is over, but we think there is more behind us than ahead of us. The negative seasonal trends of this time of year, along with the height of recent optimism, give us caution, but we think NOW is the time to start buying.

For weeks, we have been discussing the underlying technical signals that made this stock market so strong. Many of those had to do with the big expansion in breadth.

Here is another interesting technical signal.

This one comes from Ned Davis Research and was posted on x/Twitter by Day Hagan Asset Management…

In this recent sell-off, we have seen something that has happened only a few times in the last fifteen years.

The S&P 500 has sold off more than -3% over the last ten days, but at the same time, we have seen INFLOWS into the S&P 500 ETF of more than 3%.

This has happened only 13 times since 2010. Looking forward three weeks, the S&P 500 is higher 77% of the time, with an average return of +3.4%. Looking forward four months, the S&P 500 has been higher 85% of the time with an average return of +11%.

This data fits with many other data sets we have seen.

Maybe this is the exception, and it is more like March 2022, when we were going into an extended downtrend. Even then, though, the stock market rocketed higher by +7.5% in the following three weeks.

LET US BE CLEAR - four weeks ago we felt investors should be taking as many profits as possible. The stock market was too optimistic.

TODAY - we think you should begin opportunistically buying shares.

Be PATIENT and be prepared for stocks to go lower.

Buy one fifth or one tenth of what you would want to ultimately own for each of the next five or ten trading days. With a time frame of several weeks or several months - this is is a GREAT buying opportunity in our opinion.

Following up on William O'Neil's concept that you need to know the "M" or market direction to guide your trading, we believe in this BULL MARKET.

HX Podcast

Enrique is joined by one of our readers and they discuss the outlook for the stock market in the near term and through year-end.  Enrique also gives an update on the HX FREE IDEA.

Check out our timely commentary to help YOU make money!

Click here to listen on your preferred platform or watch on YouTube below.

YouTube

The HX Podcast with Enrique Abeyta brings you up-to-date financial market commentary along with evergreen insights into investing, trading and building your financial future. Enrique has 30+ years experience as a professional investor having managed billions of dollar in his firms. He brings on other world class investors and special guests to discuss investing and trading in a humorous and approachable manner.