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Daniel Cunza NYC IBD Meetup Jan. 27, 2010

CANSLIM Case Study: Medifast, Inc. (NYSE: MED), Nov. 2009 – Jan. 2010. Daniel Cunza NYC IBD Meetup Jan. 27, 2010. Initial Buy Point Conditions. “Three-weeks-tight” PATTERN was completed during week of 23-Nov. Closing all three weeks within a 1% range.

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Daniel Cunza NYC IBD Meetup Jan. 27, 2010

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  1. CANSLIM Case Study: Medifast, Inc. (NYSE: MED), Nov. 2009 – Jan. 2010 Daniel Cunza NYC IBD Meetup Jan. 27, 2010

  2. Initial Buy Point Conditions • “Three-weeks-tight” PATTERN was completed during week of 23-Nov. • Closing all three weeks within a 1% range. • Buy point established on 18-Nov., high of day plus ten cents: 28.67+0.10=28.77. • 28.77 was hit on 1-Dec. but two problems: (1) volume was below 50-SMA, (2) day’s closing price was below buy point. • At least a 40% rise in daily volume is preferred, with a closing price above the buy point. • MED does close above buy point on 2-Dec., but still on <50-SMA volume. Daniel Cunza NYC IBD Meetup/Jan. 2010

  3. Medifast, Inc. (MED): 1-Yr Daily Chart (through 26-Jan., 2010) Daniel Cunza NYC IBD Meetup/Jan. 2010

  4. Medifast, Inc. (MED): 1-Yr Weekly Chart (through 26-Jan., 2010) Daniel Cunza NYC IBD Meetup/Jan. 2010

  5. Initial Buy Point Conditions (cont’d) • On 1-Dec.., MED had all CANSLIM signature characteristics: EPS>=80, RS>=80, SMR>=B, Acc/Dis >=B-, Industry Group Rank in top 24%. • It DID close the week above buy point (good), on above 10-SMA volume (good). Volume was late, showed up on 3,4-Dec. • Note: “Three-weeks-tight” is not considered a true base by IBD, but rather an additional buy opportunity for ascending stocks. Daniel Cunza NYC IBD Meetup/Jan. 2010

  6. Take 20% Profits NOW • According to How to Make Money in Stocks, 4th ed., stocks that rise 20% within 3 weeks of breakout from a valid buy point, should be held for at least 8 weeks, before further analysis. • Otherwise 20% profits should be taken whenever they are achieved. • MED hit 28.77*1.2=34.53 on 24-Dec., two days PASS three weeks after the 1-Dec. breakout. • Therefore 20% profits should have been taken. Daniel Cunza NYC IBD Meetup/Jan. 2010

  7. Take 20% Profits NOW (cont’d) • 28-Dec. gave a 2nd clue to take profits off table: high-volume “churning” ended with price deep in lower range of wild day. • Also, 28-Dec. even gave a chance for 20%-profits to those that bought MED 5% extended from its buy point. • Note: IBD recommends forgetting about buying stocks that have risen 5% above a valid buy point. Daniel Cunza NYC IBD Meetup/Jan. 2010

  8. Party’s Over • 29-Dec.: Market starts to get wind of heavy insider selling. Down 4.4% on above-average volume. • 30-Dec.: Yup, CEO sold 30,000 shares earlier in the week. Down 10.2% on huge volume. • 11-Jan.: After small recovery, MED plunges 14.8% on biggest volume in 3 years, on heels of a weekend report of illegal marketing activities of one of its direct-selling and subsidiary companies, among other allegations. Allegations being contested at DOJ, SEC. • 19-Jan. MED is removed from the IBD100 Index. • 22-Jan.: MED closes 47% below peak close (28-Dec.). Daniel Cunza NYC IBD Meetup/Jan. 2010

  9. Conclusions • In the case of MED, the IBD recommendation to sell/avoid a stock when it trades >100% above its 200d-SMA did NOT apply. • It is obvious from daily chart that MED triples in value since mid-July, all along trading at about twice its 200d-SMA. • But yes, following every other CANSLIM recommendations, to the letter, would have handed a nice profit to those that bought the 28.77 buy point. • And no, there was no room for error, as the last three days of December would have erased ALL profits from the 28.77 buy point. Daniel Cunza NYC IBD Meetup/Jan. 2010

  10. THANK YOU FOR YOUR ATTENTION Daniel Cunza NYC IBD Meetup/Jan. 2010

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