Market Summary

The markets continued to defy gravity and confound our market model this week as the major indexes closed higher for the fifth week in succession. The DJI again performed best with a gain of 1.1%, the S&P 500 followed up with a 0.77% gain and the NASDAQ Composite added 0.58%. The week's volume was slightly lower on the NASDAQ and S&P 500, but the DJI registered its fourth accumulation week in the last five. The nervousness about the market's high-wire act was best evident in the NASDAQ which suffered a big distribution day on Monday, its fifth in fifteen sessions, which caused our market model to switch to 'exit' but by the end of the week it had reversed itself back to 'enter'.

Economic news was mixed but was still viewed as positive by the markets. The Institute of Supply Management reported higher than expected growth in both the manufacturing and services sectors while the prices paid component was higher, bringing into question the Fed's ability to lower interest rates as inflation fails to come down. The jobs created report on Friday revived the possibility of rate cut later this year with far fewer jobs created in April than in March. The market's collective wisdom, as reflected in higher stock prices, is that the economy will indeed experience a 'soft landing' this year and the Fed will stimulate with a rate cut later in the year. The 'hard landing' protagonists see the latest job numbers as the long awaited proof of their theory. Their argument is that the housing construction decline has not shown up in the unemployment reports so far because the layoffs have been among undocumented workers, but the latest numbers show that the layoffs are now affecting legal workers. They believe that full employment has supported consumer spending but that will soon decline as job losses spread and employment risk is more evident. They also note that credit card debt is rising as homeowners can no longer extract cash from their homes and that this cannot sustain consumer spending indefinitely. The doomsayers argue that we have been living inside a bubble that is about to burst. Our sympathies are with the hard-landing camp, but the resilience and adaptability of the US economy can't be underestimated.

This uncertainty has left us in cash for some time now, so we have missed out on some significant gains. Breakouts were not going on to make big gains in the first quarter but that has changed recently. Over the last two weeks, the average gain by successful breakouts has been over 9%, with some stocks making very substantial gains in a very short time. Examples are NGA with a gain of 54% since its breakout on 4/27 and CPY with a gain of 37.4%. Both broke out from a cup-with-handle base.

Be agile, let the trend be your friend, but but be ready to bail when the bubble bursts

There were no new features added this week.

How to find Pull Backs to the 50 dma Level

One of our least promoted, but most powerful tools, is the ability to search our database of all NYSE, NASDAQ and AMEX symbols for stocks meeting specific technical and fundamental criteria. We described how to use this tool in our April 2, 2005 Newsletter but haven't revisited the topic since.

A function we recently added is the ability to search for stocks that have pulled back to their 50 day moving average level. Our criterion for a pull back is that the stock must be within +/- 1% of its 50 day moving average price and have been at least 10% higher in the last three months. When this filter is combined with any of the other searchable conditions, you have a powerful tool to select pullbacks to the 50 dma that also meet other technical and fundamental conditions of your choice.

To find stocks that meet the 50 dma pull back conditions, access the database search function from the Mine for Candidates > Database Search menu choice. Then choose a set or sub-set of stocks to search on and check the "50 dma Pull Backs" box.

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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