| Market Summary | Weekly Breakout Report | Top Breakout Choices | Top 2nd Chances | New Features | Tip of the Week |
The NASDAQ Composite is trading in a narrow range between 3570 and 2620 as it consolidates the recent upward move. A break above or below these levels on higher than average volume will indicate the direction of the next move. Volume has improved to 50 day average levels indicating that the recent run up has brought more interest into the market and that hopes are that the market will continue to move higher. Instead we may see profit taking from the wiser market players. Our market trend indicators all point up but I believe there is a higher likelihood of a break below support at 3570 than a break above resistance at 2620.
The number of breakouts fell to 7 this week - a reflection of the consolidation that is taking place. The standout performer was TROV (TrovaGene) which broke out from a classic CwH base on Monday and closed 10.7% higher. The stock has now formed a new handle and is again on our CwH watchlist. This stock's Relative Strength Rank on Monday was 96. Our research shows that stocks with an RS 0f 90 or more generally outperform stocks with a lower RS. Although we place all stocks with an RS of 80 or more on our watchlists, we depart from CAN SLIM and believe stocks with an RS of 90 or more are much better candidates. See below for the evidence for this belief.
No new features this week
Why
You Should only Trade Stocks with an RS >= 90
From the earliest days of our website, I found that RS rank was highly correlated with performance after breakout. In 2010 I studied the evidence for why this is so in more detail and present it again for our new readers.
RS Rank can take values from 1 to 99 but we only select stocks with an RS Rank of at least 70 for our cup-with-handle pattern and publish only those with an RS >= 80 . Looking at our data since 2004 we can see how stocks in each percentile performed. The chart below shows the mean performance after breakout for each RS percentile measured from breakout price to highest gain after breakout.
Conclusion
While breakouts from a cup-with-handle base can perform well on average, the best potential for highest gain comes from stocks in the 90-96 range.
From the earliest days of our website, I found that RS rank was highly correlated with performance after breakout. In 2010 I studied the evidence for why this is so in more detail and present it again for our new readers.
RS Rank can take values from 1 to 99 but we only select stocks with an RS Rank of at least 70 for our cup-with-handle pattern and publish only those with an RS >= 80 . Looking at our data since 2004 we can see how stocks in each percentile performed. The chart below shows the mean performance after breakout for each RS percentile measured from breakout price to highest gain after breakout.
The
graph clearly shows that there is a positive relationship
between RS rank and subsequent performance after breakout.
This is confirmed by the positive slope of the regression
line through the data. The data for this plot was not
filtered by volume on breakout day and therefore includes
all volume levels.
The
next chart shows the spread around the mean of the
highest gains for each percentile. The circles represent
the mean maximum gain after breakout for each
value of RS rank. The vertical bars represent the
standard error in estimating the mean from our
sample. If we are aiming for a gain of
25% after breakout, we can see that its only RS
values in the range 90 to 96 that consistently
produce the target return. Interestingly, it
seems that RS values above 96 perform only at an
average level, indicating that these stocks are
perhaps overvalued with less potential for further
gains.
While breakouts from a cup-with-handle base can perform well on average, the best potential for highest gain comes from stocks in the 90-96 range.
| Index | Value | Change Week | Change YTD | Trend | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dow | 15558.8 | 0.09% | 18.73% | Up | ||||||||||||||||||||||||||||||||||||
| NASDAQ | 3613.16 | 0.35% | 19.66% | Up | ||||||||||||||||||||||||||||||||||||
| S&P 500 | 1691.65 | -0.23% | 18.61% | Up | ||||||||||||||||||||||||||||||||||||
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. |
||||||||||||||||||||||||||||||||||||||||
|
# of Breakouts
|
Period Average1
|
Max. Gain During Period2
|
Gain at Period Close3
|
|
|---|---|---|---|---|
| This Week | 7 | 10.54 | 5.46% | 1.56% |
| Last Week | 11 | 10.92 | 7.28% | 3.51% |
| 13 Weeks | 134 | 11.46 | 18.15% |
9.86% |
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.
|
Category
|
Symbol
|
Company Name
|
Expected Gain1
|
|---|---|---|---|
| Best Overall | PKD | Parker Drilling Company | 113 |
| Top Technical | PKD | Parker Drilling Company | 113 |
| Top Fundamental | INVN | InvenSense Inc | 52 |
| Top Tech. & Fund. | INVN | InvenSense Inc | 52 |
|
Category
|
Symbol
|
Company Name
|
Expected Gain1
|
|---|---|---|---|
| Best Overall | HHS | Harte-Hanks, Inc. | 73 |
| Top Technical | SOHU | Sohu.com Inc | 38 |
| Top Fundamental | UTHR | United Therapeutics Corporation | 38 |
| Top Tech. & Fund. | UTHR | United Therapeutics Corporation | 38 |
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