BreakoutWatch.com Weekly Review for 07/26/2014

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

The NASDAQ Composite is trading in a flat base pattern. After attempting to break resistance on Thursday the index pulled back on Friday in response to disappointing earnings and fears new sanctions on Russia would inhibit growth. Friday's Doji pattern indicates indecision as to the next move with a slight bias towards the upside.

NASDAQ Comp.

Weekly Breakout Report

The number of breakouts slipped slightly to 22 from last week's 26. Breakouts from the SqueezePlay watchlist formed the majority of breakouts. As a reminder, the SqueezePlay watchlist is drawn from stocks ascending the right side of a cup but do not qualify for the cup and handle watchlist.

Brkout Date	Symbol	Base	Squeeze	BrkoutOut Price	Brkout Day Close	Last Close	Current % off BOP	Gain at Intraday High
Breakouts for Week Beginning 07/21/14
07/24/14	UA	SQZ	Y	60.73	69.55	69.11	13.80	14.52
07/22/14	YINN	CwH	N	29.53	30.73	33.44	13.24	13.24
07/23/14	CCM	CwH	N	8.56	9.39	8	-6.54	9.7
07/21/14	ZINC	CwH	N	18.91	19.54	19.55	3.38	9.47
07/21/14	PXLW	CwH	N	8.79	9.14	8.32	-5.35	8.19
07/22/14	CDZI	SQZ	Y	8.84	9.33	9.35	5.77	5.77
07/24/14	NOK	SQZ	Y	7.88	8.32	8.24	4.57	5.58
07/21/14	TMO	SQZ	Y	121.10	122.14	125.07	3.28	3.64
07/21/14	IEP	SQZ	Y	103.25	103.33	105.87	2.54	3.51
07/24/14	WAB	CwH	N	83.86	86.18	85.46	1.91	2.77
07/24/14	ABC	SQZ	Y	74.76	76.37	76.79	2.72	2.72
07/21/14	ONNN	SQZ	Y	9.44	9.44	8.66	-8.26	2.12
07/23/14	RUSHA	CwH	N	35.27	35.85	35.7	1.22	1.64
07/23/14	HNP	CwH	N	48.50	48.91	48.61	0.23	0.85
07/24/14	SBUX	SQZ	Y	79.84	80.45	78.74	-1.38	0.76
07/24/14	PRLB	CwH	N	85.90	86.51	84.49	-1.64	0.71
07/25/14	XRX	CwH	N	13.06	13.15	13.15	0.69	0.69
07/21/14	IDIX	HTF	N	24.17	24.28	24.33	0.66	0.66
07/22/14	SLG	SQZ	Y	111.16	111.72	109.75	-1.27	0.63
07/24/14	VNO	SQZ	Y	108.42	108.6	107.34	-1.00	0.17
07/24/14	CVGW	SQZ	Y	34.79	34.81	34.85	0.17	0.17
07/24/14	MAA	SQZ	Y	74.30	74.38	74.2	-0.13	0.11
Weekly Average (22 breakouts)							1.3	3.98

New Features this Week

Additional Value that we added this week

Historical Volatility

A knowledge of historical volatility (HV) is important when judging if an option is fairly priced. We've added a HV chart showing HV as calculated by the ThinkorSwim (TOS) trading platform.

The Historical Volatility study calculates volatility which can be expressed by the following formula:

where

c is a coefficient depending on the volatility basis and m is average of logarithmic return x_i which, in turn, is calculated as follows:

Think or Swim use a value of 20 for the coefficient c and so do we.

If you are interested in trading options from the cup and handle or SqueezePlay watchlists, you will find this chart invaluable. It is accessed from the Technical Indicator chart menu:

HV Menu

This Week's Top Tip

Tips for getting the most out of our site

Historical Volatility for Options Trading

Last week we described why the squeeze and cup with handle combination can lead to profitable trades for both stocks and options. We also mentioned that the historical volatility measure used in trading options is different from the formula used by Bollinger Bands (BB). In fact, the difference is the log term in the formula above. BB's calculate the standard deviation of consecutive closing prices but historical volatility is calculated from the standard deviation of the log of consecutive closing prices.

The chart below shows the Historical Volatility for LVNTA which is on the CwH list and met our squeeze criteria on Thursday (Momentum turned negative and Friday and so it no longer meets the criteria - squeeze chart). The latest HV value is 25.42. This value can now be compared to the Implied Volatility (IV) of the available options. At the time of writing, TOS gives the IV of the August $70 strike price (the closest in-the-money option to the $71.06 Friday close) as 32.6%. This means that an increase in volatility is already built into the bid/ask price of this option.
A breakout will increase the historical volatility and it is up to the option trader to judge whether the likely increase in volatility exceeds the IV built into the trade. It is beyond the scope of this article to explain the complex nuances involved, but I refer you to The Volatility Edge in Options Trading by Jeff Augen for the details.

LVNTA

Market Summary

Overview of market direction and industry rotation

Index

Value

Change Week

Change YTD

Trend

Dow

16960.6

-0.82%

2.32%

NASDAQ

4449.56

0.39%

6.54%

S&P 500

1978.34

0.01%

7.03%

1 Week	13 Weeks	26 Weeks	Year-to-Date
Best Performing Index
NASDAQ Composite 0.39 %	NASDAQ Composite 6.17 %	S&P 500 10.5 %	S&P 500 7.03 %
Best Performing Industry (by average technical score over each period)
1 Week	3 Weeks	13 Weeks	26 Weeks
Aluminum	Aluminum	Toy & Hobby Stores	Toy & Hobby Stores
Most Improved Industry (by change in technical rank²)
Nonmetallic Mineral Mining + 43	Food - Major Diversified + 96	Nonmetallic Mineral Mining + 150	Foreign Utilities + 213
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.

Top Breakout Choices

Stocks on our Cup-and-Handle list with best expected gain if they breakout