NASDAQ Market signal moves to 'Enter'
Further Improvements to the TradeWatch Portfolio Simulation Tool. See below.

Market Summary

The markets received a scare on Thursday when import prices jumped beyond economist's expectations. Fears that this would lead to a rise in the CPI which was due the next day were calmed on Friday, though, when the CPI moved lower than last month and the all-important core level, which excludes food and energy, was lower also. For the week the DJI gained 1.5 %, the S&P 500 rose 1.6 % and the NASDAQ substantially outpaced the others to rise 3.2 %. The NASDAQ Composite closed above its 200 day moving average on Wednesday and our market signal reverted to 'Enter'. The index is now in positive territory for the year for the first time since mid-May. The index has now closed higher in each of the last six sessions but is still 5.6% below its high water mark for the year. In contrast, the DJI is less than 1% away from its high of the year and the S&P 500 even closer to its year's high.

The outlook for stocks now looks promising. The drop in the CPI indicates that inflation is coming under control, and with energy prices falling, that trend is likely to continue. Even though the year-on-year rate at 2.8% is still higher than the Fed's target level of around 2%, investors expect that the Fed will hold interest rates steady at next week's FOMC meeting. A rise in interest rates would further damage the ailing housing market on which much of consumer confidence depends. It is very unlikely that the Fed will upset consumer confidence and risk a market downturn so close to the November elections. Lower energy costs will also leave consumers with more disposable income and the oil companies are likely to do what they can to keep the price of crude on a downward course ahead of the election. Unforeseen events can quickly change that picture, of course.

The number of confirmed breakouts jumped to 68 this week compared to the weekly average over the last three months of 29. This is another sign that markets are increasingly bullish, although gains have been modest with most breakouts remaining within the 5% limit on breakout day.

The Electronics sector contributed the most breakouts by far with 12 breakouts coming from that sector. Food and Dairy products was the best performing sector as measured by our industry rankings on a technical basis with Retail-Discount Variety as the most improved industry.

Simulated Tradewatch Portfolio Returns Redux

Last week we introduced a tool that allowed you to estimate the returns you would have obtained historically using our Tradewatch Best Return and Buy at Open strategies. We've added some options to that tool now that correct a flaw in the way stocks were selected for purchase and provide you with more simulation options. We've also open the tool up to non-Tradewatch subscribers and guests, although the last 30 days of trades will not be shown in this case.

It can happen that there are more stocks available for purchase than there are available positions in your portfolio. We've now introduced a 'tiebreaker' that allows you to choose stocks based on lowest price, highest price, highest CE, highest CET, highest CEF, highest RS, highest Expected Gain, or lowest industry rank (industries are ranked 1-192, best to worst).

We've also added an option to buy only when all of our market signals show enter, or to buy under any market condition.

Choosing Tradewatch History > Portfolio Simulation now presents you with the following screen:

Running the default options (which covers the entire period for which we have Tradewatch History) provides the following impressive result:

You will see that there are now two ways to look at the simulation in Excel. 'View Full Simulation in Excel' will give you all Tradewatch buy and sell events and show which ones were bought and sold depending on the portfolio simulation options you chose. 'View Trades Only in Excel' will show just the buy and sell events that would have occurred under your selected options.

Running the simulation with the option of not buying when a market signal is at 'exit' yields an even more impressive result:

Using the different tiebreaker choices provides some interesting results also. For the same period and buying only when the market signal is at 'enter' gives:

We see that the best results are obtained by using CET (the technical strength) or Industry Rank as the tie breaker.

Running the simulation over different time periods will give different results for which tie breaker is best. For example, for the year 2006 to date we obtain:

It is also interesting to play with portfolio size. If one had limited the portfolio size to 3 stocks selected by CET and only purchased when the market signals were all at enter, then the return year to date would have been 81.9%!

This tool is still undergoing testing and enhancement. I encourage you to try different options, and if you find any errors then please let me know. Also, let me know what you think of this tool and how to improve it.

Investment Advisors Using our Service

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”. 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.

PivotPoint Advisors, LLC takes a technical approach to investment planning and management. A breakoutwatch.com subscriber since May, 2004, they use breakouts, market signals, and now TradeWatch to enhance returns for their clients. Learn more at http://pivotpointadvisors.net or contact John Norquay at 608-826-0840 or by email at john.norquay@pivotpointadvisors.net.

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