Swing Trading Small Caps Using CANSLIM

Swing Trading Small Caps using the CANSLIM system is my specialty. For the past 20 years I have studied and been a disciple of William O’Neil and the system. What he did was take every winner that ever went from $10 to $100 and found they all had the same 7 similar characteristics. The acronym was born CANSLIM. His formula is based here my formula the percentages are larger where I am looking for 100% and more increases in the current earnings and sales. 

Every Sunday for the past 10 years I send out a Swing Trade Newsletter with up to 5 new picks for the weeks ahead. Here are the results for the past 10 years 

Here are the results from January 2023 image below and a sample of the MOJO Swing Trade Newsletter 1/16/2023 

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.

Keep it profitable,

ProTrader Mike