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Beginners in Stock Trading
Weekend Recap: Week 5 (M2 W1)
A NOTE ON WHERE WE ARE
Thirty-three lessons drafted and read. M1 Foundation is in the rear-view mirror. M2 W1, current earnings, is now done in three parts.
If you've kept up, the cumulative reading load is now about 6.5 hours of newsletter text since Day 1. That's roughly a chapter of How to Make Money in Stocks per week of newsletter, in our compressed and updated framing. Tomorrow is your fifth Pattern of the Week (Cup-with-Handle #2, Costco 2003), then Monday opens M2 W2 with EPS surprises and post-earnings drift.
THE WEEK IN ONE PARAGRAPH
Three lessons:
- Wednesday, Why earnings drive stocks. The empirical finding from O'Neil's research: stocks that produce sustained large advances almost universally have visible earnings momentum at the start of those advances. The mechanism: market repricing of both the immediate forecast and the implied multi-year trajectory. The two paths: institutional buying and the narrative flywheel.
- Thursday, The 25% rule. The canonical CAN SLIM benchmark for current quarterly EPS growth, year-over-year, with acceleration preferred over deceleration. The GAAP-vs-adjusted distinction. The under-a-minute workflow for finding the data on any stock. Four common variations of the rule (tighter, lower for mega-caps, two-quarter confirmation, trailing four quarters).
- Friday, How to read an earnings report. The five numbers that matter (revenue + YoY growth, EPS + YoY growth, forward guidance, operating margin). The four common distractions (absolute revenue dollars, cash position, one-time gains/losses, stock-based compensation). The five-minute sequence. When the conference call matters more than the press release.
THE ONE THING THAT MATTERS MOST FROM M2 W1
If you remember nothing else from this week: the C is the pre-screen, not the entry signal.
A stock that clears 25%+ year-over-year EPS growth in its most recent quarter, with acceleration over the prior quarter, has earned the right to your further attention. It hasn't earned a buy. The chart hasn't been checked. The base hasn't been evaluated. The market environment hasn't been read. The position size hasn't been calculated. The C is just the gate that determines whether the rest of the analysis is worth doing.
This sounds obvious. It's not. The most common beginner mistake at this stage of CAN SLIM education is to find a stock that meets the C criterion and start treating that as a buy thesis. "This stock grew earnings 47% last quarter, I'm buying!" That's not a CAN SLIM trade. That's one letter of a seven-letter framework being mistaken for the framework.
The way to think about the C: it cuts the universe of investable stocks down by roughly an order of magnitude. The S&P 500 alone has about 500 stocks, of which maybe 75-100 might clear 25% EPS growth in any given quarter (more in a strong earnings season, fewer in a weak one). Across all U.S. listings, the number that clears the C in any given quarter is somewhere in the low thousands. Of those, the rest of CAN SLIM (A, N, S, L, I, M) cuts further, often down to a final list of 20-50 stocks per cycle that pass all seven filters.
That final list is where the watchlist comes from. Then patterns determine when, and risk management determines how big. The C is just the first cut.
Monday opens M2 W2 with EPS surprises and post-earnings drift. We cover the academic finding (post-earnings announcement drift, or PEAD), the documented tendency of stocks that beat earnings expectations to continue drifting upward in the weeks following the announcement, and stocks that miss to drift downward. This is one of the most-replicated finance research findings of the past 50 years and an important input for thinking about timing around earnings dates.
Tuesday is Trader Tuesday: William O'Neil, the C origin story, going deeper into how O'Neil arrived at the 25% threshold and how the rule has been applied across decades of IBD coverage. (Third O'Neil-featured day of the broadcast year; we'll keep his subsequent features paced.)
The rest of the week covers margin growth as a quality signal, earnings-quality red flags, and the C checklist, what to filter for in a screening tool.
ONE READER QUESTION + ONE WEEKEND HABIT
A representative question from this week's replies:
Q: "If I find a stock with 25%+ EPS growth, should I buy it before the chart confirms a base, or wait?"
Wait. Always. The C identifies what, the chart identifies when. Buying a stock that has strong earnings but no constructive base pattern means you're buying without a defined risk level (no nearby low to set your stop against), without a confirming volume signal (no breakout to validate institutional buying), and without market timing (no read on whether the broader market is supportive). Those three things, defined risk, volume confirmation, market timing, are the difference between a CAN SLIM trade and a fundamentals-only bet. The C is necessary but not sufficient. Wait for the chart.
The weekend habit:
This weekend, build your first C-screen watchlist. Pick 10 stocks you've considered or heard of. Look up the most recent quarterly EPS year-over-year growth rate for each. Write down the rate next to each ticker. Mark the ones that clear 25% with a checkmark. Mark the ones that are also accelerating (most recent quarter higher than the prior quarter) with two checkmarks. By Monday morning you'll have a ranked list of which of your candidate stocks have the C in their favor, and which don't. That's your first piece of CAN SLIM application data.
TOMORROW, PATTERN OF THE WEEK #5
Tomorrow is Pattern of the Week #5, the second cup-with-handle of the year. The example is Costco in 2003. The first cup-with-handle (Day 7) used Apple's 2004 example to introduce the anatomy. Tomorrow uses Costco 2003 to focus on the handle's specifics, what makes a textbook handle vs a flawed one, and what a shallower-cup variant looks like in practice.