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CANSLIM Growth Stock Investing Strategy | S in CANSLIM | Supply and Demand #CANSLIM - YouTube
Channel: TraderLion
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Richard: Hey, everyone. This is Richard聽
from TraderLion.com. And today we're going聽聽
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to be talking about the S-CANSLIM, which stands聽
for Supply and Demand. S-CANSLIM is a growth聽聽
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stock trading methodology developed by William聽
O'Neil, the founder of Investors Business Daily,聽聽
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with each of these letters standing in for a聽
different, important characteristic that he found聽聽
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the greatest winning stocks of聽
all time, going back to the 1800s,聽聽
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share before and during their large price moves.
Today, our focus is on supply and demand,聽聽
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and let's start things off by talking聽
about what William O'Neil actually said聽聽
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about the S-CANSLIM. And number one, he said that,聽
"Any size capitalization can be bought using the聽聽
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CANSLIM system, but small cap stocks will be a聽
little bit more volatile. And from time to time,聽聽
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the market shifts emphasis from small back to聽
large caps. Companies buying back their stock in聽聽
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the open market and showing stock ownership by聽
management are preferred." And the reason that聽聽
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companies buying back their stock in the open聽
market is bullish is because that limits the聽聽
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supply available to trade, and so the same amount聽
of demand can increase a stock's price. And we'll聽聽
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get to that in more detail in a future slide.
And the second part of this showing stock聽聽
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ownership by management, those are preferred聽
because it basically means that they have skin聽聽
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in the game and are more likely to work harder to聽
benefit their shareholders because their own money聽聽
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is on the line. And number two here, O'Neil says,聽
"When a stock pulls back in price, you typically聽聽
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want to see volume drop at some point, indicating聽
there is no further selling pressure. When a stock聽聽
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rallies in price, in most situations you want聽
to see volume rise, which usually represents聽聽
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buy-in by institutions, not the public."
And number three, he says, "When a stock breaks聽聽
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out of a price consolidation area, trading volume聽
should jump 40 to 50% above normal. In many cases,聽聽
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it will be 100% or more that day, indicating solid聽
buy-in and likely further price increases. Using聽聽
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daily, weekly and monthly charts helps you analyze聽
and interpret a stock's price and volume action."聽
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"And going along with this, you should analyze a聽
stock's base pattern week by week, beginning with聽聽
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the first week a stock closes down in a new base聽
and continuing each week until the current week聽聽
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where you think it may break out of the base.聽
You judge how much price progress up or down聽聽
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the stock made each week, and whether it was on聽
increased or decreased volume from the prior week.聽聽
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You also note where the stock closed within聽
the price spread of each week's high and low."聽
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And we'll go through a few different examples聽
at the end of this video, so you can really kind聽聽
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of see this in practice. And moving on, we've聽
got the stock structure, which I think is very聽聽
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important when it comes to understanding聽
the supply and demand characteristics聽聽
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because in reality, this is what sets the supply聽
available to be traded on the open market.聽
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Starting these off, we've got outstanding shares,聽
which is the total number of shares in existence聽聽
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of the company, but not all of these are available聽
to be traded because you've got restricted shares,聽聽
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charter shares, and closely-held shares, and all聽
the total shares here make up the outstanding聽聽
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shares. Up here, we've got these shares in the聽
float, which are those shares available to be聽聽
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traded in the open market. And overall, this聽
is what's important to remember, and it's also聽聽
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represented in this graphic. A lower float means聽
the wider the spreads between the bid and ask,聽聽
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and less liquidity overall, which means a stock聽
can move faster, both upwards and downwards.聽
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Overall, this is what sets the supply available to聽
be traded, and then demand comes in and sets the聽聽
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price and finds this equilibrium points. And you聽
can see here, price is set by the current supply聽聽
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available and the existing demand. And then down聽
here supply is set by the current number of shares聽聽
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and floats and the balance between the buy-in聽
pressure and the selling pressure defined and set聽聽
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this equilibrium price, which then聽
becomes the price that you see on the聽聽
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stock charts oscillating back and forth.
And what's important to remember here is聽聽
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that we can use charts to look for accumulation聽
signs by large institutions who are long-term聽聽
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holders. This is important here because聽
these institutions will absorb that supply,聽聽
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gradually amass their positions, and basically聽
that means that there's less supply available for聽聽
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other participants, which means increased demand聽
can rapidly increase the stock's price, which is聽聽
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when we want to get involved in the stock.
And in terms of these accumulation signs,聽聽
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the first thing you want to do is follow the聽
big volume. Large players show up in charts聽聽
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during high volume days, they can't hide their聽
footprints. And this is because they're not going聽聽
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out and buying 10, 100, even 1000 shares. They're聽
amassing very large positions of hundreds of聽聽
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thousands, even millions of shares that they want聽
to hold for the longterm. So, that type of buying聽聽
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really shows up significantly on these charts on聽
these high volume days, as you can see down here.聽
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Now, what does big volume mean? And聽
what does above average mean? Well,聽聽
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I think there's two main ways to look for above聽
average volume. And the first is pocket pivots.聽聽
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A pocket pivot is basically a day that either is聽
up or has a strong closing range between its high聽聽
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and low, and volume is greater than any down聽
volume of the past 10 days. That's kind of a聽聽
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subtle accumulation sign. And that's one of the聽
ways that I like to look for big volume on the聽聽
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charts. And another way to define big volume is聽
basically... is the volume above a volume moving聽聽
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average, such as the 50-day moving average or the聽
20-day moving average. This is another indication聽聽
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that volume on that particular day or week is聽
significant and should be paid attention to.聽
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You should also be watching the trend of聽
the moving averages because an increase in聽聽
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the moving average basically indicates to me聽
that more institutions are getting involved聽聽
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in trading because they're whipping around聽
larger blocks of shares. You should also be聽聽
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watching out for huge volume on-base breakouts and聽
earnings gap ups. Basically, that indicates that聽聽
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institutions are involved in that breakout聽
and that the trend is going to continue聽聽
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because they can't buy all their position聽
here because, remember, they're buying not聽聽
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just 10 or 100 shares, they're buying thousands聽
of shares, tens of thousands of shares, and they聽聽
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can't accumulate all those shares just in one day聽
without dramatically increasing the stocks price.聽
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Once a breakout like this occurs, they're聽
slowly adding the position on dips聽聽
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and pullbacks and accumulating that聽
position and building it up over time聽聽
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until they're satisfied with their current聽
amount invested in that particular company.聽聽
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And in addition to following the big volume, you聽
also want to be on the lookout for a low volume,聽聽
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which is also significant. And for instance, on聽
pullbacks, you want to be looking for low relative聽聽
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volume to the prior uptrend, which indicates聽
to me that the big money is not selling yet.聽
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And this is because if a stock moves up on high聽
volume, then drifts back into moving averages on聽聽
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relatively low volume, institutions likely are not聽
selling their stock that they just bought in that聽聽
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prior uptrend. Instead, they're holding onto their聽
shares and waiting for that support level to be聽聽
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reached, where they can support the stock and then聽
put you back up and restart the uptrend. So, make聽聽
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sure that pullbacks are on low relative volume,聽
which actually is very healthy during an uptrend.聽
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And in addition, to pull backs, you also want to聽
be watching for tight areas on light volume, which聽聽
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indicates subtle accumulation. And for instance,聽
we've got a chart of NEO here, which often during聽聽
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its very strong run in 2020 went very tight with聽
very low volume as well. You can see it's below聽聽
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this moving average here. And this indicates to聽
me that institutions are absorbing any supply聽聽
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that's coming to market, and gradually during this聽
consolidation, supply is getting less and less,聽聽
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which when demand comes in, you聽
can see from this huge volume,聽聽
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pushes up the stock price because there's less聽
supply coming to market. Before breakouts and聽聽
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during price consolidation, you want to be on聽
the lookout for these tight areas on light volume聽聽
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indicating accumulation by institutions.
And going through a few examples of weekly charts,聽聽
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we've got SNAP here to start things off. What I聽
want to focus on here is within this price space聽聽
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in August of 2020, look at how it had three聽
weeks tight at the bottom of the base with聽聽
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very tight ranges as well. This is a clear聽
sign of institutional accumulation. And then聽聽
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we've got a move up at the right side here on聽
a higher volume than these previous two weeks,聽聽
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and then ultimately a very sharp breakout on聽
earnings with a bunch of institutions jumping in,聽聽
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and then of course, a further uptrend, and then聽
another base recently after the growth correction.聽
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And move on to the next example, we've got聽
DocuSign. And there's a few interesting聽聽
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things here on the weekly charts. First of all,聽
this was during the March, 2020, correction. You聽聽
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can see that from the gray SPX line, and here is聽
the base that was formed during that correction.聽聽
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The first interesting thing to note here is the聽
strong closing ranges on this week. And this week,聽聽
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while the SPX is completely falling apart,聽
and this to me indicates institutional support聽聽
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and a closing range of greater than 40% during聽
your correction is a sign of institutional聽聽
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accumulation. And this accumulation means that聽
there's less supply available to the market, which聽聽
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means when the overall market turns around and聽
people become interested in the stock once again,聽聽
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it can really take off, as it did in 2020.
The other really interesting thing here is when聽聽
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the market bottomed and DocuSign just are moving聽
up from its base, it was already making relative聽聽
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[inaudible] new highs before new price, which once聽
again, indicates that this could be a big leader聽聽
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during the next uptrends. And moving on, we've聽
got a more recent example in SQ. And once again,聽聽
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I want to point out the strong closing range聽
on this week right here, even though it was a聽聽
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down week, it finished well off the lows, then聽
we have a nice insight week on lower volume,聽聽
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a move up and down on lower volume again, two聽
consolidation weeks, and then a strong move up聽聽
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through this pivot on high volume, and then a聽
subtle kind of fall through here this week fo聽聽
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far. Potentially it forms out a handle, maybe聽
an inside week next week, but that potentially聽聽
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could challenge the standard-based pivot.
And lastly, I want to finish things off聽聽
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with an example of a weekly chart of a stock聽
that's not under accumulation at this point聽聽
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and isn't yet showing signs of a bottoming聽
pattern, and then potentially a new uptrend.聽聽
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We've got SKLZ here. And during this uptrend, it聽
definitely showed a lot of signs of accumulation,聽聽
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a nice volume on these up weeks.聽
Good tales, strong closing ranges,聽聽
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and a very strong week here, which so far is聽
the intermediate top. And the week after that,聽聽
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it was on lower volume. That's constructive.聽
It was a nice inside week, but unfortunately,聽聽
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it did have a pretty poor closing range, so the聽
expectation would be... continue to move down.聽
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The next week, we had a gap up, but then聽
a closed below this low as well. Then it聽聽
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continued moved down well off the highest.聽
So, a little bit of accumulation here,聽聽
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but once again, an expectation breaker and move聽
up, and then move all the way back down taking聽聽
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out these lows. Then this week potentially was a聽
turnaround. You've got an undercut of the prior聽聽
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low, a strong move up, a closed [inaudible]聽
near the top of the range on higher volume.聽聽
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But the next week, once again, like this week聽
right here, we have an expectation breaker聽聽
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where we moved up and then have a pretty poor聽
close, and then fall through to the downside聽聽
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and keep following through to the聽
downside until the current week.聽
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At this moment, SKLZ is not showing聽
any signs of an intermediate bottom.聽聽
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It still needs to kind of round out here, have聽
some strong closing ranges, move up on volume,聽聽
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and then potentially start the next uptrend聽
and to move up towards this intermediate high.聽
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In summary, supply and demand is a very聽
important aspect of trading. We have to be聽聽
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able to look at charts and assess it correctly.聽
It's important to keep in mind that the stock聽聽
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structure affects liquidity and how fast the聽
stock can move to the upside or the downside.聽聽
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Price and volume analysis allows us to聽
assess upon demand and identify whether聽聽
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conditions are favorable for us to be involved.
And finally, we want to follow the big volume聽聽
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and also pay special attention to low volume聽
during tight price areas and constructive basis.聽聽
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So, I hope you guys enjoyed the video. If you聽
did, please go ahead and leave a like down below聽聽
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and subscribe to the TraderLion channel,聽
and I'll see you guys in future videos.
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