1. CANSLIM Case Study: Medifast, Inc. (NYSE: MED), Nov. 2009 – Jan. 2010
Daniel Cunza
Manhattan IBD Meetup
Jan. 20, 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: =28.77.
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 Manhattan IBD Meetup/Jan. 2010

3. Medifast, Inc. (MED): 1-Yr Daily Chart (through 19-Jan., 2010)
Daniel Cunza Manhattan IBD Meetup/Jan. 2010

4. Medifast, Inc. (MED): 1-Yr Weekly Chart (through 19-Jan., 2010)
Daniel Cunza Manhattan 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 Manhattan IBD Meetup/Jan. 2010

6. Daniel Cunza Manhattan IBD Meetup/Jan. 2010
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 Manhattan 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 Manhattan IBD Meetup/Jan. 2010

8. Daniel Cunza Manhattan IBD Meetup/Jan. 2010
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.
19-Jan. MED is removed from the IBD100 Index.
19-Jan.: MED closes 41% below peak close (28-Dec.).
Daniel Cunza Manhattan IBD Meetup/Jan. 2010

9. Daniel Cunza Manhattan IBD Meetup/Jan. 2010
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 buy point.
And no, there was no room for error, as the last three days of December would have erased ALL profits from the buy point.
Daniel Cunza Manhattan IBD Meetup/Jan. 2010

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