BreakoutWatch.com Weekly Review for 01/23/2010

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

It is an oft-stated truism that the markets hate uncertainty and they received a double-whammy of the heebie-jeebies late this week. On Thursday, the Administration introduced some ill-defined constraints on the bank's ability to trade for their own account and on Friday Ben Bernanke's re-confirmation as Fed Chairmen seemed increasingly doubtful. In general, Wall Street is grateful for Bernanke's stewardship of the financial crisis, especially as it allowed them to make substantial profits by trading on cheap money provided by the Fed. Now that the Administration has moved to reflect populist anger towards the banks, any change at the head of the Fed could signal a less accommodating stance.

While these factors accelerated the slide on Thursday and Friday, the markets were already in a nervous state as earnings were generally below estimates and world growth in 2010 is threatened by China's plans to curtail growth and control inflation by stifling lending by the nation's banks.

As usual we review prospects for the NASDAQ as that market is the incubator for most breakout stocks. The chart contains four harbingers of more pain to come.The index has fallen

through the lower bounds of its 9-month ascending trend line of closing prices
lower than the 50 day moving average
outside the lower Bollinger band by a substantial margin not seen since the March, 2009 bottom.

Finally, recalling that resistance becomes support, the index looks about to break through the support line at 2205. Should it do so, there is no clearly defined support level and the present 5% correction could easily double to 10%.

Market turbulence has a history of either subsiding or worsening over the weekend so we make no predictions as to what Monday will bring.

New Features this Week

Additional Value that we added this week

We have updated our Zacks strategy backtest tool to include the latest available data and also put in place a process to update the backtest data base on a daily basis going forward. The default parameters for the tool have been adjusted to show the most recent 12 months of data.

Over the last 12 months, using the strategy with a buy on alert and a 8% stop loss on that alert price would have yielded a 48% return (as of writing 1/20/2010). However, using a trailing stop of 12% would have yielded a return of 70%. The best return of 114% would have been obtained with 9% stop and 12% trailing stop.

To use our Zacks Strategy you must first subscribe to Zacks. You can get a free trial by clicking their logo. We are not affiliated with Zacks, but we do get a commission on on any referrals, so please click this link.

A subscriber has suggested porting this backtest tool to work with all our data, not just Zacks Rank 1 stocks, and we are in the process of doing so.

This Week's Top Tip

Tips for getting the most out of our site

Our investigation of the factors that contribute to a viable breakout from a cup-with-handle chart pattern have generated a good deal of interest. This week we heard from a subscriber who only considers breakouts with an RS Rank level of 99 but after reading last weeks analysis is considering switching to considering RS Rank levels of 91 or above.

Now with just 1.7% of breakouts having an RS Rank of 99 its possible that he could be missing a lot of opportunities. On the other hand it may be that the stocks with an RS Rank of 99 have a much lower failure rate than those ranked 91 or more and may give a better overall return. To resolve this, we wanted to analyze in more detail the performance of those stocks ranked 91 or better.

While doing so, we discovered late on Friday afternoon that the data set on which we were doing the analysis was incomplete and needed to be re-extracted. Handling these large volumes of data is time consuming and we couldn't complete the extraction in time to do a meaningful analysis before the weekend, so we will have to resume our analysis next week.

I don't expect the missing data to have a material affect on the results but it is better to be sure.

I know this is frustrating to our subscribers as it is to me, but researchers often find errors in their experimental methods and have to begin again and I'm sure you would prefer to have confidence in the results.

Market Summary

Overview of market direction and industry rotation

Index

Value

Change Week

Change YTD

Trend

Dow

10173

-4.12%

-2.45%

NASDAQ

2205.29

-3.61%

-2.81%

S&P 500

1091.76

-3.9%

-2.09%

Russell 2000

617.12

-3.27%

-2.67%

Wilshire 5000

11289.1

-3.64%

-1.81%

1 Week	13 Weeks	26 Weeks	Year-to-Date
Best Performing Index
Russell 2000 -3.27 %	Russell 2000 2.71 %	Russell 2000 12.52 %	Wilshire 5000 -1.81 %
Best Performing Industry (by average technical score over each period)
1 Week	3 Weeks	13 Weeks	26 Weeks
Housewares & Accessories	Housewares & Accessories	Silver	Copper
Most Improved Industry (by change in technical rank²)
Aluminum + 54	Aluminum + 99	Long Distance Carriers + 213	Long Distance Carriers + 210
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. 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	5	11.31	3.4%	-3.06%
Last Week	25	11.23	9.92%	0.83%
13 Weeks	162	11.85	14.86%	-0.27%

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