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INVESTOR'S CORNER

Can The CAN SLIM Investing Method

Succeed In Algorithmic Trading?

DAVID SAITO-CHUNG 05:00 PM ET 06/29/2020

C an the CAN SLIM method of picking great stocks succeed in algorithmic

trading? Executives at O'Neil Global Advisors (OGA) think so.

How To Buy Stocks: Pick The Best Stocks At the Right Time

They express con�dence in long-term demand for a computerized system of investing

and trading. Plus, OGA of�cials expect strong interest among institutional investors

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and high-net-worth individuals in two major economies of the world: China and India.

On May 18, OGA said it launched a set of investment strategies that use algorithmic
programs. These strategies capitalize on decades of research on the key factors behind
winning and losing stocks. The strategies even sport unique names: Chameleon, Raven
and Timberwolf.

The goal? To "continue William J. O'Neil's legacy with consistent innovation, supported
by cutting-edge quantitative research, and applying those �ndings to create strategies
that outperform the market," O'Neil Global Advisors CEO Steve Birch said in a news
release.

Is This William O'Neil 3.0?

William O'Neil founded an institutional equity research �rm that bears his name more
than 50 years ago. The former U.S. Air Force member and Hayden Stone stock broker
also bought a seat on the NYSE at age 29.

In 1984, O'Neil then created Investor's Business Daily. The former daily newspaper,
now known as IBD Weekly, etched history as the �rst in the U.S. to help traders adopt
a soup-to-nuts strategy for timing the market correctly. The methodology covers
selecting, buying and selling big stock market winners according to a well-de�ned set
of rules.

Today, millions of articles, charts and screens get viewed each month at Investors.com.
In recent years, IBD powered new successful online products Leaderboard and
SwingTrader.

Randy Watts, OGA's chief investment of�cer, notes equity investing can be dif�cult for
most individuals and even fund managers. Why? They succumb to emotions.

"Buy low, sell high" is a misnomer. No doubt, research has shown a majority of
professional investors fail to beat the S&P 500 over time. Unfortunately, many
amateurs and pros often commit the mistake of buying near market highs and
throwing in the towel at major lows.

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"We felt we could take the elements of Bill O'Neil's methodology developed over
decades, put them into quantitative algorithms, eliminate problems with human
emotions, and create what we think are positive strategies," Watts told IBD.

A Tech Advantage In CAN SLIM Investing

Join IBD Live! Learn Top Chart-Reading, Sell Rules, Portfolio Techniques With CAN
SLIM Pros

Indeed, technology and the markets keep evolving. Thus, OGA has striven to stay on
the bleeding edge.

Its team boasts 55 technology associates. Among them, 29 specialize in quantitative

engineering, technical architecture and data science.

Also, OGA employs a database that has a mother lode of fundamental, technical and
institutional share ownership data in thousands of stocks. O'Neil built it with the help
of an IBM mainframe computer in the 1960s. Plus, the database itself goes as far back
as the huge railroad stocks of the late 19th century. This data may give OGA's
quantitative strategies an edge.

Watts argues the CAN SLIM method of selecting the strongest growth stocks can
thrive across a variety of time horizons. Decades of expertise in analyzing the most
successful chart patterns also make these new strategies unique.

Algorithmic Trading And CAN SLIM Investing; 3 New Quantitative

Strategies

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The Chameleon quant strategy invests only in Invesco QQQ Trust (QQQ), which tracks
the Nasdaq 100. Watts says Chameleon gets its name for an "ability to shift from long
to short to cash." It will employ classic O'Neil-style chart patterns such as the cup with
handle.

Chameleon will adjust exposure based on key market turns. Here, distribution day
analysis helps investors to determine the right time to cut exposure. Second,
the follow-through day concept serves an important timing signal for entering back
into stocks.

The Raven algorithmic trading strategy offers these features. First, it targets
companies that meet CAN SLIM principles. Second, it goes long in stocks that show
positive momentum in fundamentals, breakouts and positive chart action. And three,
Raven sells short names with a weakening earnings and technical picture

Finally, Timberwolf aims to �nd the "lone wolves" of the market. How so? This
algorithmic trading strategy goes long in stocks with excellent earnings stability.
Timberwolf will employ a proprietary factor rating developed by William O'Neil + Co.
In addition, it will go short in companies with high earnings variability.

"We feel that over time, companies with a high earnings stability outperform those
with high earnings variability," Watts said.

China And India Market Potential In Algorithmic Trading

OGA's William O'Neil Investment Management Co. manages seven quantitative

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strategies for domestic clients in China. In late April, the Shanghai-based �rm received
the country's 26th license as a foreign-funded private manager to operate there.

"We think the China stock market is a great opportunity as the Chinese population
learns about investing, per capita income grows, and as it becomes more comfortable
with equity investing," Watts said. "O'Neil's book, 'How to Make Money in Stocks,' has
been available in China for many years."

Meanwhile, �ve quantitative strategies got approval from India's regulators in April.
They target high net worth and institutional investors.

"We think India will be one of the largest secular growth stories for several decades,"
Watts noted.

Please follow Chung on Twitter at @SaitoChung and @IBD_DChung for more on growth
stocks and market insight. Follow Watts on Twitter at @Randy_Watts_

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