October 29, 2001

STOCKFIRST Newsletter
Investment Strategies For The Smart Investor

http://www.stockfirst.com

USA - "United We Stand"
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One Minute Market Snapshot

The Week in Review

Monday - The major averages closed higher Monday as
investors shrugged off the latest anthrax scare and bid up
tech stocks and blue- chips alike. The Dow Jones Industrial
Average gained 173 points, or 1.9%, to 9377. The Nasdaq
was up 37 points, or 2.2%, to 1708, and the S&P 500 was
up about 16 points, or 1.5%, to 1090. The Philadelphia
Stock Exchange semiconductor index ended up 4.9%.

Tuesday - The major averages closed lower Tuesday, but off
their worst levels of the session, as the latest anthrax news
compounded an already grim earnings outlook. The Dow
Jones Industrial Average lost 37 points, or 0.4%, to 9340.
The Nasdaq dropped 4 points, or 0.2%, to 1704, and the
S&P 500 was off about 5 points, or 0.5%, to 1085.
Telecommunications equipment maker Lucent (LU:NYSE)
reported a third-quarter loss of $909 million, or 27 cents a
share, wider than the consensus loss estimate of 23 cents a
share. The company also took a restructuring charge totaling
$8 billion.

Wednesday - Blue-chips closed slightly higher Wednesday,
and tech stocks climbed as strength in the semiconductor
sector helped the Nasdaq move higher. The Dow Jones
Industrial Average tacked on 5.54 points to 9345.62. The
Nasdaq rose 27.10 points, or 1.6%, to 1731.54, and the
S&P 500 was barely changed at 1085.20. The
semiconductor stocks benefited from the chip equipment
book-to- bill ratio, which came in slightly higher in
September than the previous month. Intel (INTC:Nasdaq)
and LSI Logic (LSI:NYSE) ended with gains, while the
Philadelphia Stock Exchange Semiconductor Index finished
up 4%. Chip stocks are off to the races again in what has
become the customary reaction to practically any news in the
sector whatsoever.

Thursday - Stocks closed higher Thursday, after trading
lower for much of the session, overcoming weak economic
data, pessimistic profit reports and more anthrax news. The
ride began when the Commerce Department reported its
durable goods numbers for September, showing orders for
big-ticket items tumbled to their lowest level in more than
five years. The orders fell far more sharply than expected,
fueled by a drop in aircraft orders since Sept. 11. On the
housing front, September's existing home sales fell 11.7% in
September to $4.89 billion, vs. a consensus estimate of
$5.20 billion. Separately, the newly unemployed grew in
ranks with the latest jobless claims number rising by 8,000 to
504,000 last week. The Dow Jones Industrial Average
gained 117.28 points, or 1.3%, to 9462.90. The Nasdaq
rose 43.90 points, or 2.5%, to 1775.44, and the S&P 500
was up 14.89 points, or 1.4%, to 1100.09.

Friday - Blue-chips closed higher Friday as investors
shrugged off a series of less-than-stellar earnings reports and
lukewarm economic data, but tech stocks inched lower. The
Dow Jones Industrial Average gained 82.27 points, or 0.9%,
to 9545.17. The Nasdaq was down 6.49, or 0.4%, to
1768.98, and the S&P 500 was up 4.52 points, or 0.4%, to
1104.61. This morning, the University of Michigan released
its final consumer sentiment report for October, with the
index rising to 82.7 from 81.8 the previous month.


Major Stock Market Indices & Trends
_______________________________________________
Index:           DJIA       SP500    NASDAQ    RUT

Close on
10/26          9204.11   1073.48    1671.31     425.7

1 Week       9545.17   1104.61    1768.96     438.65
Before
% Change      3.7           2.9            5.8            3.0

3 Months   10455.63   1202.93   2022.96     485.07
Before
% Change    -8.7         -8.2         -12.6         -9.6

1 Year       10380.12   1364.44   3272.18     479.76
Before
% Change     -8.0        -19.0        -45.9         -8.6

_______________________________________________
o DJIA (Dow Jones Industrial Average) -  A widely used
index that tracks 30 blue-chip companies traded primarily
on the NYSE.
o SP500 (S&P 500) -  A popular index of 500 major
companies:  400 industrial, 20 transportation, 40 utilities,
and 40 financial.
o NASDAQ (NASDAQ Composite)-  An index tracking
stocks traded by the National Association of Securities
Dealers (NASD).
o RUT (Russell 2000) -  An index that tracks 2000 U.S.
small-cap firms;  a well-regarded measure of  small-cap
stock performance.
________________________________________________


Looking Forward

With third-quarter earnings season slowing dramatically this
week, economic data will be the focus, and encouraging
signs will likely be hard to find. The gross domestic product
data due out Wednesday is expected to show a 0.9% decline
for the third quarter, according to consensus estimates.

The October purchasing manager's index will be released
Thursday and the employment report that comes out Friday
should provide a more reliable look at how the economy is
reacting to Sept. 11. These reports, the first major pieces of
October data, should be less skewed by the immediate
impact of the terrorist attacks, but they may not be pleasant.

Economists are expecting activity in the manufacturing
sector to decline for the 15th consecutive month in
September. Consensus forecasts put the October PMI at
44.6 vs. 47.0 in September and 47.9 in August. Nonfarm
payrolls are seen declining by 262,000 vs. 199,000 in
September, while unemployment is expected to surge to
5.2% from 4.9%.

For a technical look at the markets for the week, please go to
the market forecast section on the
www.buysellorhold.com/index.cfm homepage for their
technical outlook.

What follows is a capsule summary of some of the more
important Wall Street, economic, and political events that
are likely to impact stock markets this week. For a list of
upcoming earnings reports we recommend you go to
www.zacks.com/earnings/.

Calendar Highlights for the Week of  10/29/01  -  11/2/01

Monday
October 29 -
* Treasury Budget for Sep.

Tuesday
October 30 -
* Consumer Confidence for Oct.

Wednesday
October 31 -
* GDP-Adv. for Q3
* Chain Deflator-Adv. for Q3
* Chicago PMI for Oct.

Thursday
November 1 -
* Auto Sales for Oct.
* Truck Sales for Oct.
* Personal Income for Sep.
* PCE for Sep.
* Initial Claims for 10/27
* Construction Spending for Sep.
* NAPM Index for Oct.

Friday
November 2 -
* Average Workweek for Oct.
* Nonfarm Payrolls for Oct.
* Unemployment Rate for Oct.
* Hourly Earnings for Oct.
* Factory Orders for Sep.

Recognizing that you are very busy, our hope is to provide
you with a useful, easy to read column that you can enjoy
and digest in just a minute or two - hence the name One
Minute Market Snapshot. Your comments and suggestions
are greatly appreciated. Please send all comments to
Snapshot@stockfirst.com.

________________________________________________

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The Smart Investor
"An educated investor is a smart investor"

Can You Spell CANSLIM? (part 2)


The cup or cup-with-handle formation is a chart pattern that
identifies stocks preparing for a breakout to new highs or the
start of a new uptrend.  This pattern in history has shown to
be the most popular in preceding a big move up in a stock's
price.  This was popularized by William O'Neil (Founder of
Investor's Business Daily Newspaper) and his CANSLIM
method of stock picking outlined in his book, "How to Make
Money in Stocks".

The CANSLIM approach to investing combines technical
and fundamental analysis to identify promising stocks in
leading industries. According to the system, only those
stocks meeting a set of quantifiable criteria are candidates for
purchase. In addition, a stock must exhibit one of three or
four different chart patterns that summarize less quantifiable
aspects of the system.

The C-A-N-S-L-I-M characteristics are often present prior
to a stock making a significant rise in price, and making huge
profits for the shareholders!

O'Neil explains how he conducted an intensive study of 500
of the biggest winners in the stock market from 1953 to
1990. A model of each of these companies was built and
studied. Again and again, it was noticed that almost all of the
biggest stock market winners had very similar characteristics
just before they began their big moves.

This week will look at the last four components of
CANSLIM; S, L, I, and M.

S = Supply/Demand: Small Cap + Volume

Supply and demand dictates the price of almost everything
in your life. The law of supply and demand is more
important than all the analyst opinions on Wall Street. The
price of a stock with 400 million shares is hard to budge up
because of the large supply of stock available. Yet, if a
company has only 2 or 3 million shares outstanding, a
reasonable amount of buying can push the price up rapidly
because of the small available supply. If you are choosing
between two stocks to buy, one with 60 million shares
outstanding and one with 10 million shares, with all other
factors equal, the smaller one will usually be the bigger
mover. Stocks that have a large percentage owned by top
management are generally better prospects. Again
referencing O'Neil's 38 year study, more than 95% of the
companies had less than 25 million shares outstanding when
they had their greatest period of earnings improvement and
stock price performance.

Foolish stock splits can hurt a stock's performance. Watch
out for companies that split their stock 2 or 3 times in just a
year or two. The splitting creates a larger supply and may
make a company's stock performance more lethargic, like
many "big cap" companies. Large holders who thinking of
selling are often inclined to sell their 100,000 share positions
before a 3-for-1 split would have them looking to sell
300,000. Smart short sellers (an infinitesimal group) pick on
stocks beginning to falter after enormous price runups and
splits, realizing that the potential number of shares for sale
(particularly by funds) has dramatically been increased.

L = Leader or Laggard?

Which is your stock? People often buy stocks they're
comfortable and familiar with, like an old pair of shoes.
Usually these are lagging slowpokes rather than leaping
leaders. It is really important to look at how your stock is
performing in relation to the overall market. The 500 best
performing stocks from 1953 to 1990 averaged a relative
price strength of 87 (scale of 1-99) just before they began
their major advances in price. Avoid laggard stocks and look
for genuine leaders.

I = Institutional Sponsorship = Institutional Sponsorship

It takes big demand to move a stock significantly higher in
price. Institutional buyers are the most powerful source. You
don't need a large number of institutional owners, but should
have at least a few. No institutional sponsorship in a stock is
a bad sign because odds are that many institutional investors
looked at the stock and passed it over. The things we are
looking for with C-A-N-S-L-I-M are really signs that the
bigger money (mutual funds, banks, insurance companies,
pension funds, etc.) is coming into the stock. See that there
is a better-than-average performance record by at least a few
of the institutional owners.

Another good thing about some institutional sponsorship is
that it provides buying support for the stock. Beware of
stocks that become "over owned". By the time performance
is so obvious that almost all institutions own it, it is probably
too late. Pay attention to whether the number of institutional
owners is increasing or decreasing.

M = Market Direction = Market Direction

You can be right on everything else, but if you are wrong
about the direction of the broad market you are still likely to
lose money. The best way to analyze the overall market is to
follow and understand every day what the general averages
are doing. They are difficult to recognize, but meaningful
changes in the behavior of the market averages at important
turning points is the best indicator of the condition of the
whole market.

What signs should you look for to detect a market top? On
one of the days in the uptrend, the total volume for the
market will increase over the preceding day's high volume,
but the Dow's closing average will show stalling action, or
substantially less upward movement, than on prior days.

The spread between the daily high and low of the market
index will likely be a bit larger than on the earlier days.
Normal market liquidation near the market peak will only
occur on one or two days, which are part of the uptrend.
The market comes under distribution while it is advancing!
This is one of the reasons so few people know how to
recognize distribution (selling).

Immediately following the first selling near the top, a
vacuum exists where volume may subside and the market
averages will sell off for four days or so. The second, and
probably the last early chance to recognize a top reversal is
when the market attempts it's first rally, which it will always
do after a number of days down from it's highest point. If
this first attempt to bounce back follows through on the
third, fourth, or fifth rally day either on decreased volume
from the day before, or if the market average recovers less
than half of the initial drop from it's former peak to the low,
the comeback is feeble and sputtering when it should be
getting strong. Frequently the first attempt at a rally during
the beginning of a downtrend will fail abruptly. Possibly
after a one-day resurgence, the second day will open up
strong, only to sell off toward the end of the day and
suddenly close down

After an advance in stocks for a couple of years, the
majority of the original price leaders will top, and you can be
fairly sure the overall market is going to get into trouble. It is
very important to pay attention to the way the leading stocks
are acting.

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RECOMMENDED LINKS

* Zacks -
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* Self Starters -
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* Red Herring -
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* Selling Power -
www.b2bfreenet.com/cgi-bin/micro.cgi?offer=SLLNGP-00
1&&code=BSH-

* Stock Market Institute of Learning -
www.b2bfreenet.com/scripts/b2boffer.php?OFFER=WADE
CO-007&&code=BSH

* The Bowser Report -
www.freeforum.com/scripts/fofoffer.php?OFFER=THEBO
W-003&&code=BSH-

* Concord Trading -
www.b2bfreenet.com/scripts/b2boffer.php?OFFER=LHME
DI-026&&code=BSH-

* Barkey Financial -
www.b2bfreenet.com/scripts/b2boffer.php?offer=PTPASS-
004&&code=BSH-

* Investment Club of America -
http://www.b2bfreenet.com/scripts/b2boffer.php?OFFER=P
SSTAD-001&&code=BSH-


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