A volatile week closed with a rally on Friday supported by a volume level almost twice the recent average. Our trend indicators for the large cap indexes (DJI and S&P 500) are now positive while the NASDAQ indicator is still negative. The NASDAQ closed slightly above its 50 day average on Friday and I expect the trend will reverse soon. Look for the index to trade between its 50 day average and the downward sloping trend line shown on this week's NASDAQ chart. A break above that trend line would be bullish.



The number of breakouts jumped to 14 this week - more than triple those of last week, and above the recent average. While we generally recommend caution while our NASDAQ trend indicator is down, this may be the time to bend the rule and take a long position or two in anticipation of a likely reversal of trend.

No new features this week. But if you missed some recent newsletters then take a look at:

New Slope Indicator
New individual stock Trend Reversal Signals

What should be your target gain?

This may seem like a silly question in the light of the oft told adage "let your winners run" but I believe its better to take early profits so you can move on to the next winner.

The fact is, most breakouts don't make big gains before suffering a setback. Once a stock has gained, say 20%, how likely is it that it will make another 20% compared to a new position making 20%? I don't have the exact answer to that but we do have a way to test when you should be satisfied with the gain you have using our CwH backtest tool.

Using the buy and sell criteria recently published for stocks since January 1 this year (see New Strategy Suggestions, I ran the backtest tool with successively increasing target gains. (Setting a target gain forces the backtest tool to sell the stock when that gain is reached. The backtest tool then buys the next breakout to come along.) I ran the backtest for holding just one position and four positions simultaneously. Here are the results.

Target Gain	Profit %
	1 position	4 positions
10	30.9	13.1
15	44.0	16.0
20	46.1	17.5
25	42.0	16.5
30	42.0	16.5
35	42.0	16.5
40	42.0	16.5

As you can see, the optimum time to sell is when your profit reaches 20%. This causes you to forgo any further, possibly slight gains, in preference to taking a new position with a potentially higher gain. Note that if you go for a target above 25% your gains plateau as you will most likely be stopped out of a position.

If you are wondering why a 4 position strategy is less profitable, it's because only 1/4 of your capital is invested in any one position, but the number of times there are 4 breakouts that meet the buy conditions is rare, so you are rarely fully invested.