Weekly Newsletter 11/05/05
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
Prior editions of this newsletter with our valuable Tips of the Week are available here.
 Weekly Commentary  

Market Summary

Our market model reversed itself twice again this week as markets attempted to reconcile threats to the economy from inflation, interest rates and energy prices with positive news on retail sales and productivity. The dilemma resolved itself to the upside and the markets closed near their highs for the week on above average volume. The DJI gained 1.23%, the NASDAQ rose an impressive 3.81% and the S&P 500 added 1.81%. The DJI and S&P 500 broke through resistance levels at the 50 and 200 dma levels and several analysts drew attention to the all-time high reached by the Dow Jones Transportation Index, considered a leading indicator of economic activity.

Last week we again drew attention to the descending trendline on the NASDAQ and the narrowing Bollinger Bands that could presage a breakout to either the upside or the downside. This week we saw the breakout occur to the upside and the index convincingly broke through the descending trend line and walked up the outside of the upper band. This is a bullish pattern as a close outside the upper band is a continuation signal (see A Short Discussion on Bollinger Bands).

This week saw the number of successful breakouts almost double to forty-eight for an average gain of 3.5%. PW Eagle (PWEI) made its second breakout in two weeks and has gained 27% since October 31. Hughes Supply (HUG) closed 10.5% higher following its breakout on Monday.

Be sure to read our 'Top Tip' this week to see how to improve your chances of selecting top gainers such as these. Also, note that our Backtest tool has been improved to allow analysis of successful breakouts.

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 New Features this Week Additional Value that we added this week

Backtest Enhancements

Our Backtest tool now allows you to select a list of stocks meeting your filters and view the corresponding charts showing the cup-with-handle features and performance since breakout. Click here for an example of this powerful new feature.

T/A Charts Enhancements

Support and resistance levels were added to the T/A charts as well as cup-with-handle and double-bottom annotations of critical turning points.

New CwHwatch Metric - VADVR

See below.

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

New Metric: VADVR

This week we continue to look at new metrics we are introducing which will improve our subscriber's returns through increasing the chances of selecting successful breakouts and those most likely to make higher longer term gains.

Last week we introduced our new Price/Volume Indicator (PVI) metric. This week we introduce the Volume to Average Daily Volume Ratio (VADVR) metric as a new column under the CWH Metrics tab on CwHwatch. The VADVR is the last metric we will introduce and next week we look at how combining the three new metrics with our other data considerably improves your ability to pick successful breakouts with high gains and low chance of failure after breakout.

The VADVR considerably increases the chance of selecting a successful breakout as we will see. The following table summarizes all stocks that have appeared on our CwHwatch list since April, 2003. Each entry on the list is called a 'case'. We evaluated each case according to whether or not a breakout attempt occurred and how it was resolved. A breakout attempt is an intraday condition that occurs when a stock meets its breakout price and its projected volume will meet 1.5 times the average daily volume. We send out alerts when a breakout attempt is made and our new VADVR metric will help you determine if that alert has a chance of success. 'Success' means the breakout was confirmed; FV means it failed on volume, that is, it didn't meet the 1.5 times adv requirement; FP means it failed on price, meaning it closed below the breakout price on the day of the attempt and FB means it failed on both price and volume.

You can see that the average success rate is just 2.32% of all cases but 46.28% of all alerts. You can also see that the chance of success rises as VADVR increases.

VADVR No AttemptFBFPFVSuccessTotal Attempts Total of Cases% of successes Success as % of all CasesSuccess as % of Attempts
<= 0.5021125158982152817522187711.90%1.2837.37%
<= .752722926613430445511592838819.27%1.6039.26%
<= 1.002094121614624052311252206622.15%2.3746.49%
<= 1.25119941271221383907771277116.52%3.0550.19%
<= 1.506224619767264489671311.18%3.9353.99%
<= 1.75330934612815627935886.61%4.3555.91%
<= 2.0018281531159015119793.81%4.5559.60%
<= 2.25111013238559912092.33%4.5555.56%
<= 2.50689318841707591.74%5.4058.57%
<= 2.75515314721455600.89%3.7546.67%
<= 3.00326110619363620.80%5.2552.78%
> 3.001230836106612013502.80%4.8955.00%
Totals96520905790104623615102101622100.00%2.3246.28%

This chart represents graphically how the chance of a breakout attempt for all cases increases with VADVR:

Once an alert is issued, the average chance that a breakout will occur is 46%. This chart shows the chance of any particular attempt being confirmed increases with VADVR:

Conclusion

The difference between success and failure in the markets is gained by improving the odds in our favor. We can never be 100% right but if we are right more often than we are wrong then we stand to make outstanding gains if our strategy is coupled with a sound money management policy. So if we are trying to pick successful breakouts from the alerts we receive each day, then we should pay attention to the VADVR because it can significantly improve our chances of picking a winner. To summarize, here's how the chances of picking a successful breakout on an alert improve as the VADVR increases:

If VADR is: Chance of Successful Breakout is:
> 0 46.28%
> 0.5 47.82%
> 0.7550.92%
> 1.0053.34%
> 1.2555.24%
> 1.5056.00%
> 1.7556.05%
> 2.0054.59%
> 2.2554.24%
> 2.5052.74%
> 2.7554.49%
> 3.0055.00%
Next week we'll show how combining VADVR with HQ and PVI can substantially improve our investment returns. Don't miss it!

Investment Advisors Using our Service

If you are interested in basing part of your investment strategy on our service, but do not have the time, experience or confidence to do so on your own account, then consider using an investment advisor.

TradeRight Securities, located in a suburb of Chicago, is a full services investment management company and broker/dealer. They have been a subscriber, and user, of BreakoutWatch.com for some time now. They practice CANTATA and use Breakoutwatch.com as a “research analyst”.

They also provide:

• A hands-on approach through personalized service
• On-going communication, guidance, and consultation
• An environment that working together with their clients will help them reach their financial goals

You can learn more about TradeRight Securities at: www.traderightsecurities.com. If you’re interested in speaking to a representative, simply call them toll-free at 1-800-308-3938 or e-mail gdragel@traderightsecurities.com.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 10530.8 1.23% -2.34% enter
NASDAQ 2169.43 3.81% -0.28% enter
S&P 500 1220.14 1.81% 0.68% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
3.81 %
NASDAQ Composite
2.53 %
NASDAQ Composite
4.35 %
S&P 500
0.68 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Oil & Gas-Mach/Equip Oil & Gas-U S Integrated Oil & Gas-Cdn Integrated Oil & Gas-Cdn Integrated
 Most Improved Industry (by change in technical rank2)
Electr-Scientific Instruments
+ 63
Electr-Scientific Instruments
+ 105
Electr-Scientific Instruments
+ 142
Electr-Laser Systems
+ 174
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 38 24.15 6.36% 3.51%
Last Week 21 24.69 8.81% 5.97%
13 Weeks 389 27.46 10.09%
1.16%
Sector
Industry
Breakout Count for Week
Insurance
Insurance-Diversified
2
Insurance
Insurance-Prop/Casualty/TItl
2
Telecomm
Telecomm-Services Fgn
2
Banks
Banks-Foreign
1
Banks
Banks-Southeast
1
Beverages
Beverages-Alcoholic
1
Building
Building-A/C Heating Pds
1
Business Services
Business Svcs-Sec/Safety
1
Business Services
Business Svcs-Staffing
1
Chemical
Chemical-Plastics
1
Computer
Computer-Services
1
Computer
Computer-Networking
1
Computer Software
Comp Software-Enterprise
1
Diversified Operations
Diversified Operations
1
Electronics
Electr-Semicndtr Mfg
1
Electronics
Electr-Parts Distrib
1
Electronics
Electr-Misc Products
1
Finance
Finance-Invest Management
1
Finance
Finance-Brokers
1
Healthcare
Healthcare-Instruments
1
Healthcare
Healthcare-Drugs/Generic
1
Healthcare
Healthcare-HMO
1
Healthcare
Healthcare-Products
1
Healthcare
Healthcare-Med/Dent Services
1
Machinery
Machinery-Machine Tools
1
Media
Media-Diversified
1
Metal Prds
Metal Prds-Pipe/Fab/Misc
1
Retail
Retail-Apparel
1
Retail
Retail-Building Products
1
Telecomm
Telecomm-Wireless Services
1
Textile
Textile-Apparel Mfg
1
Transportation
Transportation-Truck
1
Transportation
Transportation -Airlines
1
Transportation
Transportation-Services
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 EMBT EMBARCADERO TECHNOLOGIES INC 82
Top Technical CPTV CAPTIVA SOFTWARE CORP DEL 32
Top Fundamental ZNT ZENITH NATL INS CORP 17
Top Tech. & Fund. ZNT ZENITH NATL INS CORP 17
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 LAB LABRANCHE & CO INC 41
Top Technical RVSN RADVISION LTD 0
Top Fundamental ASPM ASPECT MED SYS INC 15
Top Tech. & Fund. ASPM ASPECT MED SYS INC 15
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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