Our trend signal for the NASDAQ Composite turned down on April 16, joining the signals for the S&P 500 and DJI. The daily chart of the NASDAQ shows that so far the index continues to respect the support level at around 3000 and the 50-day dma, but the index closed below the 50-day average on Friday and the increasing volume on Thursday and Friday suggests strongly that this support level will soon fail. The most likely next move will be downward to test support at 2900.

No new features this week.

Pullbacks  to Breakout Price Support

This week we look at another suggestion from a subcriber. He wanted to know how confirmed breakouts that pull back to near the breakout price subsequently perform.

For this analysis, I looked at confirmed breakouts that pulled back to within +/- 1% of their breakout price within two weeks of breakout and found support at that level (that is, they never fell below -1% of the BoP during that two weeks). I had available the code that I've used for the last two weeks' analysis which I could quickly adapt so performed an analysis on the assumption that one bought at the support level and then looked at their performance after 1, 2, 3 and 4 weeks.


These results are preliminary and appear encouraging as they imply that buying pullbacks gives a success rate of 90% in the first week and that after 4 weeks there are still 72% that are above their BoP. However, the results require further analysis in order to develop an entry point strategy.  The weakness with the analysis so far is that I selected stocks that never fall below -1% in the two weeks following breakout and yet in practice once a stock has fallen to within 1% of the BoP we cannot know if it will not fall further.

Time permitting, I'll dig deeper into these promising results next week.

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