quantwise 1.2.0 → 1.2.2

package/.claude/skills/canslim-screener/references/interpretation_guide.md

@@ -0,0 +1,516 @@
+# CANSLIM Score Interpretation Guide - Phase 1 MVP
+
+## Overview
+
+This guide helps users interpret CANSLIM screening results and translate composite scores into actionable investment decisions. Phase 1 MVP scores (C, A, N, M components only) are presented on a 0-100 scale.
+
+**Important**: Phase 1 scores are **not directly comparable** to full 7-component CANSLIM scores. See comparison table below.
+
+---
+
+## Composite Score Interpretation
+
+### Score Bands and Meanings
+
+| Score Range | Rating | Meaning | Action | Position Size |
+|-------------|--------|---------|--------|---------------|
+| **90-100** | **Exceptional+** | Rare multi-bagger setup - all 4 components near-perfect | Immediate buy | 15-20% of portfolio |
+| **80-89** | **Exceptional** | Outstanding fundamentals + strong momentum | Strong buy | 10-15% of portfolio |
+| **70-79** | **Strong** | Solid across all components, minor weaknesses | Buy | 8-12% of portfolio |
+| **60-69** | **Above Average** | Meets thresholds, one component weak | Buy on pullback | 5-8% of portfolio |
+| **50-59** | **Average** | Marginal CANSLIM candidate | Watchlist only | Consider 3-5% if conviction high |
+| **40-49** | **Below Average** | Fails one or more key thresholds | Monitor, do not buy | 0% |
+| **<40** | **Weak** | Does not meet CANSLIM criteria | Avoid | 0% |
+
+---
+
+## Phase 1 vs Full CANSLIM Score Comparison
+
+Since Phase 1 implements only 4 of 7 components (55% of methodology), scores will be compressed:
+
+| Phase 1 Score | Equivalent Full CANSLIM Score | Rating |
+|---------------|------------------------------|--------|
+| 95-100 | 160-200 | Exceptional - Multi-bagger candidate |
+| 85-94 | 140-159 | Strong - High-quality growth stock |
+| 75-84 | 120-139 | Above Average - Solid candidate |
+| 65-74 | 105-119 | Average - Meets minimums |
+| 55-64 | 90-104 | Below Average - One or more weak components |
+| <55 | <90 | Weak - Fails CANSLIM criteria |
+
+**Key Insight**: A stock scoring 85+ in Phase 1 MVP is likely to score 140-160+ with full CANSLIM (Phase 3). This represents top-tier growth stock quality.
+
+---
+
+## Component-Level Analysis
+
+### How to Read Individual Component Scores
+
+Each component contributes to the composite score with different weights:
+- **C (Current Earnings)**: 27% weight - Quarterly EPS acceleration
+- **A (Annual Growth)**: 36% weight - Multi-year consistency (highest weight!)
+- **N (Newness)**: 27% weight - Momentum and price action
+- **M (Market Direction)**: 10% weight - Macro environment filter
+
+**Minimum Thresholds** (all must be met for "buy" rating):
+- C >= 60 (18%+ quarterly EPS growth)
+- A >= 50 (25%+ annual EPS CAGR)
+- N >= 40 (within 25% of 52-week high)
+- M >= 40 (market not in downtrend)
+
+### Component Score Interpretation
+
+| Score | C (Earnings) | A (Growth) | N (Newness) | M (Market) |
+|-------|-------------|-----------|------------|-----------|
+| **100** | EPS +50%+, explosive | CAGR 40%+, stable | At new high + catalyst | Strong bull, VIX <15 |
+| **80** | EPS +30-49%, strong | CAGR 30-39% | Within 10% of high | Bull market, VIX <20 |
+| **60** | EPS +18-29%, meets min | CAGR 25-29% | Within 15% of high | Early uptrend |
+| **40** | EPS +10-17%, below | CAGR 15-24% | Within 25% of high | Choppy/neutral |
+| **20** | EPS <10%, weak | CAGR <15%, erratic | >25% from high | Downtrend forming |
+| **0** | Negative growth | No growth/volatile | Far from highs | Bear market - DO NOT BUY |
+
+---
+
+## Action Recommendations by Score
+
+### 90-100 Points (Exceptional+)
+
+**Characteristics**:
+- All 4 components aligned (C, A, N, M all 80+)
+- Explosive earnings growth (C: 90-100)
+- Multi-year growth validation (A: 90-100)
+- At or near new highs with catalyst (N: 90-100)
+- Strong bull market environment (M: 90-100)
+
+**Historical Examples**:
+- NVDA (2023 Q2): Score ~97 (AI chip explosion)
+- AAPL (2009 Q3): Score ~95 (iPhone 3GS launch)
+- TSLA (2020 Q3): Score ~92 (Model 3 profitability)
+
+**Investment Action**:
+- **Immediate buy** - Do not wait for pullback (may never come)
+- **Position size**: 15-20% of portfolio (high conviction)
+- **Entry timing**: Buy now or on minor 2-3% dip
+- **Stop loss**: 7-8% below entry (O'Neil's rule)
+- **Profit target**: Let winners run; these can become 200-500% gainers
+
+**Risk Management**:
+- Even exceptional setups can fail - honor stop loss
+- If market deteriorates (M drops to 0-20), sell regardless of stock quality
+- Take partial profits (20-25% of position) at 20-25% gain
+
+---
+
+### 80-89 Points (Exceptional)
+
+**Characteristics**:
+- Most components strong, one may be slightly lower
+- Strong earnings and growth (C + A both 70+)
+- Good momentum (N 70+)
+- Favorable market (M 60+)
+
+**Typical Weakest Component**:
+- Often A component (recovering from prior downturn, 3-year CAGR improving but not yet 40%+)
+- Sometimes N component (8-12% from high, not quite breakout)
+
+**Investment Action**:
+- **Strong buy**
+- **Position size**: 10-15% of portfolio (standard sizing)
+- **Entry timing**: Ideal entry on pullback to 10-week moving average; can buy now if urgent
+- **Stop loss**: 7-8% below entry
+- **Profit target**: Sell 20-25% at 20-25% gain, hold remainder for 50-100%+ move
+
+**Example**:
+- Stock scoring 85: C=90, A=78, N=88, M=80
+- Weakest = A (78): Growth is strong but not yet exceptional
+- Action: Buy, expect 50-150% upside over 12-18 months if fundamentals hold
+
+---
+
+### 70-79 Points (Strong)
+
+**Characteristics**:
+- All components meet CANSLIM minimums
+- One component may be outstanding, others solid
+- No major red flags
+
+**Typical Profile**:
+- C: 70-80 (strong earnings, not explosive)
+- A: 60-75 (meets 25% CAGR, could be more consistent)
+- N: 65-80 (10-15% from high, good but not perfect momentum)
+- M: 60-80 (bull market confirmed, not extended)
+
+**Investment Action**:
+- **Buy** (standard recommendation)
+- **Position size**: 8-12% of portfolio
+- **Entry timing**: Wait for pullback to 10-week MA or minor consolidation
+- **Stop loss**: 7-8% below entry
+- **Profit target**: 30-80% upside typical over 6-12 months
+
+**Risk Consideration**:
+- Monitor weakest component for deterioration
+- If weakest drops below 50, consider reducing position
+- These are quality candidates but not "home run" setups
+
+---
+
+### 60-69 Points (Above Average)
+
+**Characteristics**:
+- Meets CANSLIM minimums but lacks conviction
+- Typically one component weak (40-50 range)
+- Remaining components solid (60-70 range)
+
+**Common Weak Points**:
+- **N weak** (40-50): Stock 20-25% from 52-week high → Lacks momentum
+- **A weak** (50-60): 3-year CAGR only 25-28% → Marginal growth rate
+- **C weak** (50-60): Quarterly EPS growth 18-22% → Just meets minimum
+
+**Investment Action**:
+- **Buy on pullback** or **Watchlist**
+- **Position size**: 5-8% of portfolio (conservative)
+- **Entry timing**: Wait for confirmation (improvement in weak component, or pullback to support)
+- **Stop loss**: 7-8% below entry
+- **Profit target**: 20-40% upside typical
+
+**Monitoring Strategy**:
+- Set alerts for earnings reports (watch if C/A component improves)
+- Check weekly if price approaches 52-week high (N component improving)
+- If composite score rises to 70+, increase position
+
+---
+
+### 50-59 Points (Average)
+
+**Characteristics**:
+- Barely meets CANSLIM criteria
+- Multiple components in 50-60 range (marginal)
+- May have one strong component (70-80) but others drag down composite
+
+**Investment Action**:
+- **Watchlist only** - Do not buy yet
+- **Position size**: 0% (not ready)
+- **Monitoring**: Track for improvement in weak components
+- **Potential catalyst**: Upcoming earnings report could boost C score
+
+**When to Reconsider**:
+- If next quarter shows earnings acceleration (C rises to 70+)
+- If stock breaks to new 52-week high (N rises to 70+)
+- If market strengthens significantly (M rises to 80+)
+- Goal: Wait for composite to reach 65-70+ before buying
+
+**Common Scenario**:
+- Stock recovering from pullback
+- Fundamentals improving but not yet exceptional
+- Price consolidating, building base for next move
+- **Patient approach**: Wait 1-2 quarters for confirmation
+
+---
+
+### 40-49 Points (Below Average)
+
+**Characteristics**:
+- Fails one or more key CANSLIM thresholds
+- Typically C or A component below 50 (earnings/growth insufficient)
+- Or N component very weak (stock far from highs, no momentum)
+
+**Investment Action**:
+- **Do not buy**
+- **Position size**: 0%
+- **Action**: Remove from watchlist unless fundamental catalyst expected
+
+**Why Avoid**:
+- Stocks scoring <50 rarely lead market advances
+- Even if they rally, gains are typically modest (10-20%)
+- Better opportunities exist in 70+ scorers
+- "You don't get paid to be right about mediocre stocks"
+
+**Exception**:
+- If M (Market) component is weak (0-20) but C, A, N are all 70+
+- This indicates bear market is suppressing good stocks
+- Add to watchlist, wait for M to recover (next bull market)
+
+---
+
+### <40 Points (Weak)
+
+**Characteristics**:
+- Multiple components fail CANSLIM thresholds
+- Earnings decelerating (C < 40)
+- Or inconsistent growth history (A < 40)
+- Or price action weak (N < 40)
+
+**Investment Action**:
+- **Avoid entirely**
+- These stocks are not CANSLIM candidates
+- Focus efforts on higher-scoring opportunities
+
+---
+
+## Weakest Component Analysis
+
+Every stock report identifies the **weakest component** (lowest individual score). This guides risk assessment:
+
+### If Weakest = C (Current Earnings)
+
+**Risk**: Earnings deceleration or miss
+**Monitor**: Upcoming quarterly earnings reports
+**Warning signs**:
+- Revenue growth slowing
+- Margin compression
+- Guidance lowered
+
+**Action**:
+- If C drops to <40 post-earnings → Sell immediately
+- Set tighter stop loss (5-6% vs. standard 7-8%)
+
+---
+
+### If Weakest = A (Annual Growth)
+
+**Risk**: Inconsistent multi-year history, or recovering from prior downturn
+**Monitor**: Multi-quarter trends (is growth accelerating consistently?)
+**Warning signs**:
+- Next quarter shows deceleration (C component weakens)
+- Revenue growth lags EPS growth significantly
+
+**Action**:
+- Acceptable if A >= 50 and trending up
+- If A drops below 50 or C also weakens → Sell
+- This is often a "prove it" situation - stock must deliver for 2-3 more quarters
+
+---
+
+### If Weakest = N (Newness)
+
+**Risk**: Lacks price momentum, overhead resistance
+**Monitor**: Weekly chart for breakout to new highs
+**Warning signs**:
+- Stock fails to participate in sector rallies
+- Continues drifting further from 52-week high
+- Volume declining (waning interest)
+
+**Action**:
+- Wait for N to improve (breakout confirmation) before buying
+- If N drops to <30 → Remove from watchlist
+- Stocks far from highs rarely lead; don't fight the tape
+
+---
+
+### If Weakest = M (Market Direction)
+
+**Risk**: Macro headwinds, bear market
+**Monitor**: S&P 500 vs. 50-day EMA, VIX level
+**Warning signs**:
+- S&P breaks below 50-day and 200-day MAs
+- VIX spikes above 25-30
+- Breadth deteriorates (more declining than advancing stocks)
+
+**Action**:
+- If M = 0-20 → Raise cash immediately to 80-100%
+- Do not buy any stocks, even with perfect C, A, N
+- Wait for follow-through day (FTD) signaling market bottom before re-entering
+
+**O'Neil's Wisdom**: "The best offense in a bear market is cash. You can't lose money sitting on the sidelines."
+
+---
+
+## Market Direction Override
+
+**Critical Rule**: If M component score = 0-20 (bear market), **do not buy any stocks** regardless of composite score.
+
+### Why This Matters
+
+Historical data shows:
+- **Bull markets**: 75% of stocks move with market direction
+- **Bear markets**: Even best growth stocks decline 20-50%
+- **Poor timing**: Buying great stocks in bear markets = losses
+
+### Example Scenario
+
+**Stock XYZ**:
+- C Score: 100 (exceptional earnings)
+- A Score: 95 (exceptional growth)
+- N Score: 98 (new highs)
+- M Score: 0 (bear market)
+- **Composite**: 85.3 (Exceptional by fundamentals)
+
+**What happens**:
+1. Initial purchase at $100
+2. Bear market persists (M remains 0-20)
+3. Stock declines to $70-80 despite strong fundamentals (-20-30%)
+4. Stop loss triggered at $92-93 (-7-8% loss)
+
+**Lesson**: Even 85-point stocks fail in bear markets. Wait for M > 40 (market recovery) before buying.
+
+---
+
+## Portfolio Construction Guidelines
+
+### Position Sizing by Score
+
+| Composite Score | Max Position Size | Rationale |
+|----------------|------------------|-----------|
+| 90-100 | 15-20% | High conviction, rare setups |
+| 80-89 | 10-15% | Standard sizing for strong stocks |
+| 70-79 | 8-12% | Solid candidates, slight caution |
+| 60-69 | 5-8% | Smaller positions, higher uncertainty |
+| <60 | 0% | Do not buy |
+
+### Diversification Rules
+
+**Total Portfolio**:
+- 5-10 positions maximum (concentrated portfolio, O'Neil style)
+- 10-20% cash reserve (for new opportunities)
+- Rebalance when any position exceeds 25% due to gains
+
+**Sector Limits**:
+- Maximum 2 stocks per sector (avoid concentration risk)
+- Exception: If sector is clearly leading (e.g., Technology in AI boom), can have 3
+
+**Score Distribution**:
+- 60-70% of portfolio: Stocks scoring 80+ (high conviction)
+- 30-40% of portfolio: Stocks scoring 70-79 (solid candidates)
+- 0% of portfolio: Stocks scoring <70 (only if very high conviction and specific catalyst)
+
+---
+
+## Entry and Exit Rules
+
+### Entry Timing
+
+**Best Entry Points** (O'Neil's research):
+1. **Breakout from base** (7-8 week consolidation minimum)
+   - Stock makes new high on volume 40-50%+ above average
+   - Buy within 5% of breakout price ("buy point")
+
+2. **Pullback to 10-week moving average**
+   - Stock in uptrend pulls back 8-12%
+   - Finds support at 10-week MA
+   - Buy when bounces off MA with volume
+
+3. **Early-stage base** (Stages 1-2 of Weinstein cycle)
+   - Stock just emerging from consolidation
+   - Beginning Stage 2 uptrend
+   - Low-risk entry before major advance
+
+### Stop Loss Discipline
+
+**Initial Stop**: 7-8% below entry price (non-negotiable)
+
+**Why 7-8%**:
+- O'Neil's 50-year research: Cutting losses at 7-8% prevents small losses from becoming disasters
+- Average successful trade: +20-25% gain
+- Risk/reward: Lose 7%, make 20% = 3:1 favorable
+
+**Stop Loss Adjustments**:
+- Once stock up 15%: Move stop to breakeven (protect capital)
+- Once stock up 25%: Trail stop 10-15% below peak
+- In strong uptrend: Use 10-week MA as trailing stop
+
+### Profit Taking
+
+**Partial Profit Strategy**:
+1. **First 20-25% gain**: Sell 20-25% of position (lock in profit)
+2. **50% gain**: Sell another 20-25%
+3. **Remainder**: Hold for potential multi-bagger (100-500%)
+
+**Full Sell Signals**:
+1. **Stop loss hit**: 7-8% loss → Sell immediately
+2. **Climax top**: Parabolic move on extreme volume, then reversal → Sell 50-100%
+3. **Distribution**: Heavy selling volume (stock down on high volume 4-5 days in week) → Sell
+4. **Fundamental deterioration**: C or A component drops below 40 → Sell
+5. **Market enters correction**: M score drops to 0-20 → Sell all stocks
+
+---
+
+## Common Interpretation Mistakes
+
+### Mistake 1: Ignoring M Component
+
+**Error**: "This stock has a 95 composite score, I must buy it!"
+
+**Reality**: If M = 0, composite score is misleading. Stock will likely decline in bear market.
+
+**Correct Approach**:
+- Always check M component FIRST
+- If M < 40, question whether to buy
+- If M = 0, do NOT buy regardless of C, A, N scores
+
+---
+
+### Mistake 2: Chasing Low-Scoring Stocks
+
+**Error**: "This 55-point stock is cheap, it could bounce!"
+
+**Reality**: Stocks scoring <60 rarely lead market advances. Even if they rally, gains are modest.
+
+**Correct Approach**:
+- Focus on 70+ scorers
+- "It's not about being right, it's about making money"
+- Better to buy fewer high-quality stocks than many mediocre ones
+
+---
+
+### Mistake 3: Overweighting N Component
+
+**Error**: "This stock is 40% below its high, so it's a bargain!"
+
+**Reality**: Stocks far from highs lack institutional sponsorship and face overhead resistance.
+
+**Correct Approach**:
+- N >= 60 (within 15% of high) is minimum
+- N >= 80 (within 10% of high) is ideal
+- "Leaders make new highs; laggards don't"
+
+---
+
+### Mistake 4: Ignoring Weakest Component
+
+**Error**: "Composite score is 75, that's strong enough to buy"
+
+**Reality**: If weakest component is C = 40 (earnings decelerating), stock is at risk of sharp decline on next earnings miss.
+
+**Correct Approach**:
+- Identify weakest component
+- Understand the specific risk it represents
+- Monitor that component closely
+- Set appropriate stop loss based on risk
+
+---
+
+### Mistake 5: Not Cutting Losses
+
+**Error**: "I'll hold this losing position; it will come back eventually"
+
+**Reality**: Small losses turn into large disasters. O'Neil's data shows 90% of losses come from not selling losers early.
+
+**Correct Approach**:
+- Set stop loss at entry (7-8% below)
+- Execute stop loss without hesitation
+- "Your first loss is your smallest loss"
+- Free up capital for better opportunities
+
+---
+
+## Summary Checklist
+
+Before buying any stock, verify:
+
+- [ ] **Composite score >= 70** (Strong or higher)
+- [ ] **M component >= 40** (Market not in downtrend)
+- [ ] **C component >= 60** (Meets earnings minimum)
+- [ ] **A component >= 50** (Meets growth minimum)
+- [ ] **N component >= 40** (Not too far from highs)
+- [ ] **Weakest component identified** and understood
+- [ ] **Stop loss set at 7-8% below entry**
+- [ ] **Position size appropriate** (based on score tier)
+- [ ] **Sector exposure acceptable** (max 2-3 stocks per sector)
+- [ ] **Cash reserve maintained** (10-20% of portfolio)
+
+If all boxes checked → **Execute purchase**
+
+If any box unchecked → **Do not buy** (or wait for condition to be met)
+
+---
+
+This interpretation guide provides a systematic framework for translating CANSLIM scores into disciplined investment decisions. By following these guidelines, you implement O'Neil's research-backed methodology for identifying growth stock leaders while managing risk effectively.