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summarizes the breakout events of the week and provides additional guidance
that does not fit into our daily format. It is published each weekend.
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Prior editions of this newsletter with our
valuable Tips of the Week are available here. |
Weekly Commentary |
|
Breakoutwatch.com Reviewed in Stocks & Commodities Magazine
Technical
Analysis of Stocks & Commodities magazine editor, Jayanthi Gopalakrishnan,
reviewed breakout watch.com for the June issue of the magazine. You can read
the review here.
Market Summary
A series of conflicting economic numbers and rising oil prices introduced
uncertainty into the markets this week with the result that sellers were in
control by the end
of
the week
and the markets
lost ground. This was the first loss in three weeks for the DJI and S&P 500,
which closed down 0.77% and 0.23% respectively, and the first loss in 5 weeks
for the NASDAQ which closed down
0.21%. Despite this week's minor setback, the NASDAQ is still the most bullish
of the indexes with accumulation exceeding distribution by the healthy margin
of 11 accumulation days to just 3 distribution days since the current rally
began on April 29. We noted last week that weekly volume
has been trending downwards on the NASDAQ and
that
trend
continued
this
week.
The
trend
is also
evident
on the other indexes, as shown on the weekly charts below. We also noted last
week that decreasing volume combined with rising prices could be a sign that
the
upward
trend was weakening and that seems to have been confirmed this week. Until
price and volume trends start moving in the same direction, we are likely
to see predominantly sideways movement.
In view of the increasing evidence of a slowdown in economic growth, the markets
will be watching Federal Reserve Chairman Alan Greenspan's testimony to Congress
on
the economy
next
Thursday
for signs
that
the Fed
could change its policy stance on interest rates. Any indication that the Fed
may not raise rates at its next Open Market Committee meeting on June 29-30
could give the markets a boost.
Breakouts
Breakouts continued to perform quite strongly with 43 being confirmed this
week across a broad base of sectors. SIRF, which had attempted to breakout
of a CwH pattern on 5/26, did so strongly on 6/1 and then gapped up on 6/2
to gain
17.2%
over
its
pivot
before
slipping
back
to
close for a 9.9% gain. OTTR broke out of a flat base on Monday and volume stayed
well above average levels all week enabling the stock to gain 8.3% at Friday's
close. RADS, which has gained nearly 100% since appearing on our CwH list in
February, broke out of a 3 day handle on Wednesday to rise 9.8% before slipping
back for an overall gain of 7.2%.
There were no breakdowns this week.
Industry Analysis
Healthcare-Hospitals continued to be the top performing industry as measured
by our technical criteria, with Transportation-Equipment Manufacturers being
the most improved, rising 64 points in the rankings to position 48 out of our
192 industry groups.
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New Features this Week |
Additional Value that we added this week |
There were no new features added this week.
|
This Week's Top Tip |
Tips for getting the most out of our site |
Technical Condition vs. Fundamental
Condition Update
On 4/30/05 we reported in this newsletter that technical
condition outweighed fundamental strength with breakouts from zone 4-3
outperforming zone 4-4 during 2005. (For an explanation of our zone methodology
see here).
I was asked to apply the same analysis to all stocks since April, 2003 when
our current CwH algorithm was implemented, so here it is.
We analyzed all stocks that were on our CwH watchlist since April, 2003, counted
the number of breakouts and assessed each breakout as a success, a failure
or undetermined:
- to be successful, a breakout had to close for a gain of at least 5%
over its pivot following the breakout
- to be a failure, a breakout had to fail to meet the success threshold,
and then fall to an intraday low of 8% below the pivot (equivalent to assuming
a 8% stop-loss order).
- to be undetermined, a stock had to remain within the range -8% to +5%.
- if successful, the gain following breakout was measured as the difference
between the breakout price and the subsequent highest closing price.
- if a failure, the gain following breakout was set at -8%.
- if indeterminate, the gain was set at 0%.
- these gains were categorized within the ranges <8%, 0-5%, 5%-20%, 20%-50%,
50%-100%, >100%
The results are summarized in the table below. To see how the distribution
of gains was distributed for each zone, click on the Avg. Gain number for the
zone (only available where the number of breakouts was significant - indicated
by a value in blue underline).
|
W/L Count => Number of stocks on the CwH watchlist
in the zone. A stock is counted only once in each zone but can appear
in multiple zones. |
B/O Count => Number of breakouts from that zone. |
Observations
- There are no breakouts in the CET 1 column in part because we screen for
a Relative Strength Rank >= 70 before placing a stock on our watchlists.
- The high return for breakouts in the CET 2 column and Zone 3-1 cannot be
relied on, because of the small number (3) of observations.
- The average gain of breakouts in the CET 3 and CET 4 columns exceeds the
average gain of breakouts in the CEF 3 and CEF 4 rows, confirming our earlier
conclusion
that
technical
strength is a better indication of subsequent breakout performance than
fundamental strength.
- The methodology used here is more conservative than that used for
the performance report on the site, so the results are not strictly comparable.
- The Zone with the least number of failures, and also giving the highest
return, was Zone 4-1.
- The zone with the highest percentage of failures was Zone 3-3 with
31%. However, the relatively small number of breakouts in the CET 3 column,
182 compared to 2197 in the CET 4 column, makes any conclusions drawn from
the
CET 3 results
suspect.
- 92% of breakouts came from stocks with CET Zone score of 4, whereas only
27% came from a CEF Zone score of 4.
Conclusion
Technical strength is a better predictor of likely breakouts than
fundamental strength and strong technical strength stocks are likely to make
stronger gains than strong fundamental strength stocks.
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|
Market Summary |
Overview of market direction and industry rotation |
Index |
Value |
Change Week |
Change YTD |
Market1
Signal |
Dow |
10461 |
-0.77% |
-2.99% |
enter |
NASDAQ |
2071.43 |
-0.21% |
-4.78% |
enter |
S&P 500 |
1196.02 |
-0.23% |
-1.31% |
enter |
Best Performing Index |
1 Week |
13 Weeks |
26 Weeks |
Year-to-Date |
NASDAQ Composite -0.21 % |
NASDAQ Composite 0.72 % |
NASDAQ Composite 4.64 % |
S&P 500 -1.31 % |
Best
Performing Industry (by average technical score over each period) |
1 Week |
3 Weeks |
13 Weeks |
26 Weeks |
Healthcare-Hospitals |
Healthcare-Hospitals |
Healthcare-Hospitals |
Oil & Gas-Drilling |
Most
Improved Industry (by change in technical rank2) |
Transportation-Equip Mfg + 64 |
Transportation-Equip Mfg + 71 |
Food-Dairy Products + 103 |
Food-Dairy Products + 124 |
Charts of each industry rank
and performance over 12 months are available on the site |
1The Market Signal is derived from our proprietary
market model. The market model is described on the site.
2The site also shows industry rankings based on fundamentals,
combined technical and fundamentals, and on price alone (similar to IBD).
The site also shows daily industry movements.
|
|
Weekly Breakout Report |
How confirmed breakouts performed this
week |
# of Breakouts
|
Period Average1
|
Max. Gain During Period2
|
Gain at Period Close3
|
This Week |
43 |
23.62 |
4.71% |
1.2% |
Last Week |
35 |
23.85 |
7.82% |
3.48% |
13 Weeks |
370 |
27.15 |
9.41%
|
2.62% |
Sector
|
Industry
|
Breakout Count for Week
|
Electronics
|
Electr-Semicndtr Mfg
|
3
|
Telecomm
|
Telecomm-Equipment
|
3
|
Computer
|
Computer-Integrated Sys
|
2
|
Computer Software
|
Comp Software-Enterprise
|
2
|
Insurance
|
Insurance-Prop/Casualty/TItl
|
2
|
Real Estate/ REIT
|
Real Estate-REIT
|
2
|
Retail
|
Retail-Apparel
|
2
|
Utility
|
Utility-Electric
|
2
|
Aerospace & Defense
|
Aerospace & Defense-Equip
|
1
|
Banks
|
Banks-Foreign
|
1
|
Building
|
Building-Residentl/Comml
|
1
|
Building
|
Building-Heavy Constr
|
1
|
Business Services
|
Business Svcs-Misc
|
1
|
Computer
|
Computer-Networking
|
1
|
Computer Software
|
Comp Software-Healthcare
|
1
|
Computer Software
|
Comp Software-Desktop
|
1
|
Electronics
|
Electr-Semicndtr Equip
|
1
|
Finance
|
Finance-Misc Services
|
1
|
Finance
|
Finance-Consumer Loans
|
1
|
Healthcare
|
Healthcare-Products
|
1
|
Healthcare
|
Healthcare-Instruments
|
1
|
Internet
|
Internet-E:Commerce
|
1
|
Leisure
|
Leisure-Products
|
1
|
Machinery
|
Machinery-Matl Hdlg/Autom
|
1
|
Machinery
|
Machinery-Const/Mining
|
1
|
Media
|
Media-Diversified
|
1
|
Oil & Gas
|
Oil & Gas-Prod/Pipeline
|
1
|
Pollution Control
|
Pollution Control-Services
|
1
|
Retail
|
Retail-Restaurant
|
1
|
Retail
|
Retail-Home Furnishings
|
1
|
Telecomm
|
Telecomm-Wireless Services
|
1
|
Textile
|
Textile-Apparel Mfg
|
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 |
HYC |
HYPERCOM CORP |
110 |
Top Technical |
CCRD |
CONCORD COMMUNICATIONS INC |
35 |
Top Fundamental |
CTGI |
CAPITAL TITLE GROUP INC |
87 |
Top Tech. & Fund. |
CTGI |
CAPITAL TITLE GROUP INC |
87 |
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 |
ANTP |
PHAZAR CORP |
101 |
Top Technical |
MTH |
MERITAGE CORP |
41 |
Top Fundamental |
CRM |
Salesforce.com Inc. |
68 |
Top Tech. & Fund. |
CRM |
Salesforce.com Inc. |
68 |
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.
Because the model variance is +/- 38% the expectation can be negative. |
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