Weekly Newsletter 12/04/04
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
 Weekly Commentary  

Last week we commented that the NASDAQ was in a cup-with-handle formation. By Monday it had registered another accumulation day and set a new high before pulling back slightly on Tuesday. The next three sessions each produced accumulation days and the index closed 2.2% higher for the week, comfortably beating the DJI, up 0.7%, and the S&P 500, also up 0.7%. The NASDAQ is now in striking distance of its last line of resistance at its 52 week high of 2153.83 set on January 26.

Last week there were concerns that the falling dollar would lead to higher import prices which, combined with rising oil prices, would lead to higher prices, which in turn would raise inflation fears with a subsequent response by the Fed to raise interest rates. Although the dollar remains weak and the budget deficit continues to threaten to raise interest rates in the longer term, these fears have receded following a dramatic fall in oil prices this week. Friday's employment report was disappointing, but it seems the markets are well placed to continue to rise in the near term.

The number of breakouts was down again this week. Many stocks have broken out over the last month and there are now fewer stocks in consolidating bases than was the case a while ago. For example, the number of stocks on our cup-with-handle list is only half what it was 4 weeks ago. While this might seem to offer fewer money making opportunities, in reality it allows more time for due diligence and careful stock selection. The potential for exceptional gains continues while market conditions continue to be favorable.

Healthcare again produced the most breakouts (6) with Computer Software registering 4.

The best performing breakouts for the week were BABY, which rose 18.7% before slipping back to a gain of 10.16% since Monday, and ZOLT which gained 14.53% on Thursday before dropping back to a gain of 7.5% for the week.

In our Tip of the Week, we show you how you can improve your returns, and find quality stocks that will never appear on our watchlists, through careful selection of stocks from our BaseWatch screen. Don't miss it!

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 10592.2 0.67% 1.75% enter
NASDAQ 2147.96 2.19% 7.04% enter
S&P 500 1191.17 0.72% 7.46% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
2.19 %
NASDAQ Composite
3.01 %
NASDAQ Composite
5.33 %
S&P 500
7.46 %
 Best Performing Industry
1 Week 3 Weeks 13 Weeks 26 Weeks
Metal Prds-Distributors Oil & Gas-Cdn Integrated Oil & Gas-Cdn Integrated Building-Wood Products
 Most Improved Industry (by change in rank)
Transportation -Airlines
+ 37
Auto & Truck-Tires/Misc
+ 50
Computer-Optical Recog
+ 149
Computer-Optical Recog
+ 148

1The Market Signal is derived from our proprietary market model. The market model is described on the site.
 Weekly Breakout Report How confirmed breakouts performed this week
# of Breakouts
Period Average1
Max. Gain During Period2
Gain at Period Close3
This Week 28 44.31 6.31% 1.5%
Last Week 34 44.77 9.48% 5.21%
13 Weeks 578 N/A 17.19%
10.55%
Sector
Industry
Breakout Count for Week
Healthcare
Healthcare-Biomed/Genetic
4
Business Services
Business Svcs-Misc
2
Finance
Finance-Misc Services
2
Aerospace & Defense
Aerospace & Defense-Electr
1
Auto & Truck
Auto & Truck-Repl Prts
1
Chemical
Chemical-Specialty
1
Computer Software
Comp Software-Educ/Enter
1
Computer Software
Comp Software-Security
1
Computer Software
Comp Software-Desktop
1
Computer Software
Comp Software-Enterprise
1
Diversified Operations
Diversified Operations
1
Electronics
Electr-Semicndtr Mfg
1
Healthcare
Healthcare-Instruments
1
Healthcare
Healthcare-Nursing Homes
1
Insurance
Insurance-Acc/Health
1
Insurance
Insurance-Life
1
Internet
Internet-ISP/Content
1
Internet
Internet-E:Commerce
1
Leisure
Leisure-Gaming
1
Pollution Control
Pollution Control-Services
1
Real Estate/ REIT
Real Estate Development
1
Telecomm
Telecomm-Wireless Services
1
Transportation
Transportation -Airlines
1
1The average number of breakouts in each week over the previous 13 weeks.
2This represents the return if each stock were bought at its breakout price and sold at its intraday high.
3This represents the return if each stock were bought at its breakout price and sold at the most recent close.
 Top Breakout Choices Stocks on our Cup-and-Handle list with best expected gain if they breakout
Category
Symbol
Company Name
Expected Gain1
Best Overall DHC Danielson Holding Corporation 123
Top Technical CVTX CV Therapeutics, Inc. 71
Top Fundamental CCBI Commercial Capital Bancorp, Inc. 55
Top Tech. & Fund. CCBI Commercial Capital Bancorp, Inc. 55
1This is the gain predicted by our Expected Gain model if the stock breaks out. Expected Gains for all cup-and-handle stocks are published on our site.
 Top Second Chances Stocks that broke out this week and are still in buyable range
Category
Symbol
Company Name
Expected Gain1
Best Overall SIFY Sify Limited 106
Top Technical ECOL American Ecology Corporation 79
Top Fundamental NIKU Niku Corporation 65
Top Tech. & Fund. NIKU Niku Corporation 65
1This is the gain predicted by our Expected Gain model after the stock has broken out which uses the volume on breakout as a predictive term.
 New Features this Week Additional Value that we added this week

There were no new features introduced this week..

This Week's Top Tip Tips for getting the most out of our site

Use BaseWatch to find quality stocks building their bases

For a stock to appear on our cup-with-handle watchlist, it must first have come quite a long way up the right side of its cup AND it must have formed a handle with the mid-point of the handle being above the mid-point of its base. This means a cup-with-handle selection algorithm will not find stocks that are low in their base, and/or stocks that have not formed a handle.

This poses the question, can I find stocks earlier in their progression up the right side of their cup, or have not formed a handle, so I can get in earlier and improve my return? Our BaseWatch screen provides the answer to this question. BaseWatch selects stocks that have begun their retracement up the right side of their base and are already showing moderately strong technical characteristics.

To illustrate the point, here's a sample of a few top-performing stocks that we selected in BaseWatch before they made our cup-with-handle list and made very acceptable gains after breakout. Had they been selected from BaseWatch, the returns could have been even better, depending on your individual sell rules.

Stock
BaseWatch
Date
BaseWatch
Price
CwH
Date
CwH Pivot
Subsequent High
Gain following
CwH Breakout

Gain following
BaseWatch Date

Extra Gain
NGPS
9/27/04
$11.40
11/12/04
$17.45
$26.65
53%
134%
81%
SYNA
08/18/04
$16.95
9/16/04
$19.93
$40.00
100%
136%
36%
MTEX
08/17/04
$10.38
9/22/04
$14.92
$23.99
61%
131%
70%
AAPL
05/25/04
$28.41
07/16/04
$33.63
$69.57
107%
145%
38%
SWN
02/26/04
$22.02
06/14/04
$26.45
$55.45
110%
152%
32%

These stocks were deliberately chosen for their outstanding gains to illustrate a point, but they are also stocks that could very easily have been selected for purchase on the dates shown. They all had very good CET scores (at least CET Zone 3) and solid fundamentals (CEF Zone 4). (Our zone system for grading technical and fundamental characteristics is described here).

As an example of a stock that never formed a handle but had outstanding returns, consider TZOO. TZOO moved so quickly it never qualified for any of our watchlists but was picked up by BaseWatch. This stock went from $15 to $105 in just 6 months but never paused long enough, nor retreated sufficiently, to make our watchlists. BUT, it did appear on BaseWatch on August 6 when it already had a very high CE of 15.03 and a near perfect CET of 6.38. It went on to gain 300%.

BaseWatch is accessed from the Mine for Candidates menu and there are powerful filtering options to refine your search for quality stocks, just as there are on our watchlist displays.


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