From - Sat Sep 23 00:16:55 2006 X-Account-Key: account6 X-UIDL: UID38805-1107311665 X-Mozilla-Status: 0001 X-Mozilla-Status2: 10000000 BreakoutWatch.com Weekly Review
Weekly Newsletter 09/23/06
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You are receiving this email because you are or were a BreakoutWatch.com subscriber, or have subscribed to our weekly newsletter. This newsletter summarizes the breakout events of the week and provides additional guidance that does not fit into our daily format. It is published each weekend.
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

The promising outlook that we saw for the markets at least through to the election took a hit this week as evidence of a sharp slowing in economic activity brought fears of a looming recession. The Fed's decision to hold interest rates steady on Wednesday was in-line with the markets' expectations, but a sharp downturn in economic activity in the mid-Atlantic region reported by the Philadelphia Federal Reserve on Thursday brought a wave of profit taking that continued on Friday. This left the major indexes below water for the week. The DJI lost 0.46%, the NASDAQ Composite dipped 0.75% and the S&P 500 lost 0.39% after flirting with a new 5-year high on Wednesday. The market's are now much more concerned about the prospects of a recession than they were just a few days ago, when the concern was more with inflationary pressure causing the Fed to raise rates further. Oil has dropped nearly $20 a barrel from its high, but the focus now is on mounting evidence of a slowing economy and some are now predicting a reduction in interest rates early next year. Treasury yields are also causing concern as the 30-year bond yield has fallen in the last week. It is just above the 3-month yield, but below the 6-month. A further fall below the 3-month level would signal yield inversion and definitely add to investors fears of a recession. Colin Twiggs reports in his trading diary that the chance of a recession in the next four quarters has increased to 35%. This is higher than it has been over the last five years but below the 50% tipping point.

Despite these fears, the NASDAQ looks technically sound although it did close below its 200 day average on Friday. A close below the PSAR (the dotted line) early next week would coincide with a failure of support at the 9/5/06 high and confirm a short term correction. The distribution day count is at 3 over the last 13 days. Two of these will drop off the count in the next two sessions, so unless we get two distribution days on Monday and Tuesday of next week, our market signal will remain at enter for the NASDAQ.

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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

Tradewatch Buy at Open Simulations back to 2003

We continue to look at results from our Tradewatch simulation tool this week. Last week, we found some very promising results when combining the Buy at Open strategy with the standard Sell Assistant model and staying out of the market when any of our market signals were at exit. We also introduced a tie-breaker option to use when there were more buy opportunities than available portfolio positions. A subscriber, David C., pointed out that there were too few trades from which to draw conclusions about the best choice of tie-breaker, so this week we have backtested the simulation to our earliest available data in April, 2003.

Firstly, allow me to remind you of the options available through the Portfolio Simulation screen.

We ran through all the options available on this screen for an opening capital of $100,000 from April 2003 through to Friday, September 22 for portfolio sizes from 2 to 25 positions and found the best returns occurred as follows:

# of
Positions
Use Position
Size Limit
Use Market Signal
Tie-Breaker
# of Buys
# of Sells*
# Times Tie-
Breaker Used
Final Portfolio
Value
Overall
Return %
S&P 500
Return
%
4noyes Exp. Gain 625620 849,231.90 749.2355.01
3noyes Lowest Price 484216 834,167.03 734.1755.01
4noyes Industry Rank 625618 820,322.94 720.3255.01
4noyes Lowest Price 625618 811,671.60 711.6755.01
2noyesIndustry Rank 32282 786,917.05 686.9255.01
3noyesRS 484216 781,361.28 681.3655.01
5noyesIndustry Rank 777013 777,718.44 677.7255.01
3noyesExp. Gain 484216 767,071.11 667.0755.01
2nonoCET 817811 765,604.37 665.655.01
* If several buys were made of the same stock, a sell can close out more than one position

Due to the computing resources needed to run the simulation over this period of, we can't make the data prior to 2005 available, but you can get a spreadsheet of results for all combinations here. You can see the actual trades the simulation made for the top returning combination here.

For comparison, the ten worst returns were for the following combinations:

# of
Positions
Use Position
Size Limit
Use Market Signal
Tie-Breaker
# of Buys
# of Sells*
# Times Tie-
Breaker Used
Final Portfolio
Value
Overall
Return %
S&P 500
Return
%
2nono Lowest Price 2019232280.25-67.7256.38
2nono Highest Price 2019232280.25-67.7256.38
2nonoCE 2019232280.25-67.7256.38
2nonoCET 2019232280.25-67.7256.38
2nonoCEF 2019232280.25-67.7256.38
2nonoRS 2019232280.25-67.7256.38
2nono Exp. Gain 2019232280.25-67.7256.38
2nono Industry Rank 2019232280.25-67.7256.38
2yesno Highest Price 1514140851.64-59.1556.38
2yesnoCEF 1514240851.64-59.1556.38
* If several buys were made of the same stock, a sell can close out more than one position

The conclusions I draw from this are that:

  • the TradeWatch Buy at Open strategy can be very rewarding when combined with the Sell Assistant
  • returns are best when the number of portfolio positions is kept small - 4 appears to be optimum
  • returns are best when Expected Gain is used as the tie-breaker
  • not buying when the market signal is at exit improves returns

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.

Note to advisors: If you would like to be listed here, please contact us. As a service to those who subscribe to us, there is no additional charge to be listed here.

Get a 14 day Trial of our premium 'Platinum' service and TradeWatch for just $9.95 and if you subsequently subscribe to any subscription level we will credit your $9.95 to your subscription.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 11508.1 -0.46% 7.38% enter
NASDAQ 2218.93 -0.75% 0.62% enter
S&P 500 1314.78 -0.39% 5.33% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
S&P 500
-0.39 %
NASDAQ Composite
2.1 %
NASDAQ Composite
2.69 %
Dow Jones
7.38 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Food-Dairy Products Food-Dairy Products Oil & Gas-U S Integrated Electr-Laser Systems
 Most Improved Industry (by change in technical rank2)
Electr-Parts Distrib
+ 50
Retail-Discount/Variety
+ 65
Healthcare-Hospitals
+ 136
Food-Meat Products
+ 169
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 39 30.69 4.12% -0.47%
Last Week 68 28.69 5.1% 0.72%
13 Weeks 419 31.54 9.2%
1.24%
Sector
Industry
Breakout Count for Week
Real Estate/ REIT
Real Estate-REIT
5
Computer
Computer-Services
2
Computer Software
Comp Software-Enterprise
2
Healthcare
Healthcare-Med/Dent Services
2
Insurance
Insurance-Prop/Casualty/TItl
2
Telecomm
Telecomm-Equipment
2
Aerospace & Defense
Aerospace & Defense-Equip
1
Business Services
Business Svcs-Staffing
1
Business Services
Business Svcs-Misc
1
Chemical
Chemical-Fertilizers
1
Computer
Computer-Networking
1
Computer Software
Comp Software-Desktop
1
Electronics
Electr-Connectors/Components
1
Electronics
Electr-Misc Products
1
Healthcare
Healthcare-Products
1
Internet
Internet-Software
1
Leisure
Leisure-Toys/Games
1
Machinery
Machinery-Industrial
1
Media
Media-Diversified
1
Oil & Gas
Oil & Gas-Prod/Pipeline
1
Paper
Paper
1
Pollution Control
Pollution Control-Equip
1
Retail
Retail-Discount/Variety
1
Retail
Retail-Department Stores
1
Retail
Retail-Misc/Diversified
1
Special
Special-Market/Tracking Funds
1
Textile
Textile-Apparel Mfg
1
Transportation
Transportation -Airlines
1
Utility
Utility-Gas
1
Utility
Utility-Water
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 ARGN Amerigon Inc 90
Top Technical SMP Standard Motor Prods 46
Top Fundamental CWTR Coldwater Creek Inc 38
Top Tech. & Fund. CWTR Coldwater Creek Inc 38
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 FUR Winthrop Realty Trust Inc 89
Top Technical BONT Bon-Ton Stores Inc 37
Top Fundamental HEI Heico Corp 31
Top Tech. & Fund. HEI Heico Corp 31
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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