BreakoutWatch.com Weekly Review for 01/23/2016

Breakoutwatch Weekly Newsletter 01/22/16

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.

Weekly Commentary
On Wednesday, the NASDAQ Composite found support at Last August's low and closed higher than the day's low, signifying a rally attempt had begun. Thursday's close was higher and Friday's gap up at the open was encouraging and the index closed 2.3% higher for the week, outperforming the two other major indexes. So is the correction, which reached almost 17% for the NASDAQ, over? Investors Business Daily advises to wait for a "follow through day" (FTD) which could occur as early as Monday, although my analysis of the success of FTD's (see Are Follow Through Days a Reliable Indicator of Downward Trend Reversal?) concluded they were not reliable, confirming only two out of six actual rallys studied. Following that study, I developed my own trend reversal signal, which continues to indicate a downward trend. As for the longer term outlook, Nouriel Roubini, who was one of the few economists to warn of the 2008 crash, is moderately upbeat about the prospects for the global economy this year.

Weekly Commentary

On Wednesday, the NASDAQ Composite found support at Last August's low and closed higher than the day's low, signifying a rally attempt had begun. Thursday's close was higher and Friday's gap up at the open was encouraging and the index closed 2.3% higher for the week, outperforming the two other major indexes.

So is the correction, which reached almost 17% for the NASDAQ, over? Investors Business Daily advises to wait for a "follow through day" (FTD) which could occur as early as Monday, although my analysis of the success of FTD's (see Are Follow Through Days a Reliable Indicator of Downward Trend Reversal?) concluded they were not reliable, confirming only two out of six actual rallys studied. Following that study, I developed my own trend reversal signal, which continues to indicate a downward trend.

As for the longer term outlook, Nouriel Roubini, who was one of the few economists to warn of the 2008 crash, is moderately upbeat about the prospects for the global economy this year.

Weekly Breakout Report

Breakouts Summary by Watchlist for Week Beginning 01/18/16
List	Breakouts	Avg. Gain
CwH	3	1.88
SQZ	9	3.08
HSB	1	10.73

Breakouts Detail for Week Beginning 01/18/16
Brkout Date	Symbol	Base	Squeeze	BrkoutOut Price	Brkout Day Close	RS Rank^*	Last Close	Current % off BOP	Gain at Intraday High
01/20/16	GCO	HSB	N	56.64	61.38	46	62.72	10.73	10.93
01/20/16	ADTN	SQZ	Y	17.62	17.94	94	18.835	6.90	7.63
01/21/16	PETS	SQZ	Y	17.42	17.96	91	18.62	6.89	7.58
01/21/16	ADTN	SQZ	Y	17.95	18.965	90	18.835	4.93	5.65
01/21/16	NNN	CwH	N	40.50	40.53	83	41.63	2.79	2.81
01/21/16	DF	CwH	N	18.40	18.64	85	18.9	2.72	2.77
01/22/16	NNN	SQZ	Y	40.54	41.63	87	41.63	2.69	2.71
01/22/16	UTL	SQZ	Y	35.76	36.58	82	36.58	2.29	2.32
01/22/16	EEFT	SQZ	Y	72.40	73.57	95	73.57	1.62	1.71
01/22/16	T	SQZ	Y	34.59	35.09	88	35.09	1.45	1.59
01/21/16	PLKI	SQZ	Y	59.16	60.01	83	59.48	0.54	1.52
01/22/16	FDEF	SQZ	Y	37.49	37.63	88	37.63	0.37	0.37
01/22/16	GBAB	CwH	N	22.37	22.40	89	22.4	0.13	0.27
Weekly Average (13 breakouts)								3.39	3.68
^*RS Rank on day before breakout.

New Features This Week
No new features this week, although the cup and handle backtest, which was withdrawn from service, is back on line.

New Features This Week

No new features this week, although the cup and handle backtest, which was withdrawn from service, is back on line.

Top Tip of the Week
New Rules for Trading Cup and Handle Breakouts I discovered a bug in the cup and handle backtest which caused it to produce more optimistic profit results than were in fact possible. Consequently, I withdrew the tool from service while I corrected and tested the bug. The tool is now back on line. The default settings are for the optimal returns as described below. Since January 1, 2015 to yesterday (1/22/16), the strategy could have returned 66% compared to a loss of 7.5% for the S&P 500. The corrected tool now leads me to suggest new rules for trading cup and handle pattern breakouts for optimal (meaning best return at lowest risk) returns. The new rules are: Each day, before the market opens, create a list of cup and handle pattern stocks that satisfy these conditions RS Rank must be at least 92 Industry Rank must be in the top 50 percentile (i.e. have a rank less than 111 in our industry ranking scheme Average daily volume >= 100,000. Positive Quarterly Earnings score >= 6/10 (CEF2) Quarterly Earnings Growth Acceleration score >= 2/10 (CEF3) You can create this list of stocks using the filter settings shown below. Check the market trends published each day on our Monitor > Market Analysis page or in our daily email If market trend is positive, buy on alerts meeting these criteria with a stop limit 5% above the breakout price (BoP) Sell at next open if closing price less than BoP or volume at end of breakout day is less than 1.25 times average 50 day volume Monitor the closing price each day and set a trailing stop at 7% below the highest close since breakout. Sell if trailing stop met intraday. These filter setting on the cup and handle watchlist will select stocks meeting these criteria and also set your alerts to include these stocks:

Top Tip of the Week

New Rules for Trading Cup and Handle Breakouts

I discovered a bug in the cup and handle backtest which caused it to produce more optimistic profit results than were in fact possible. Consequently, I withdrew the tool from service while I corrected and tested the bug. The tool is now back on line. The default settings are for the optimal returns as described below.

Since January 1, 2015 to yesterday (1/22/16), the strategy could have returned 66% compared to a loss of 7.5% for the S&P 500.

The corrected tool now leads me to suggest new rules for trading cup and handle pattern breakouts for optimal (meaning best return at lowest risk) returns. The new rules are:

Each day, before the market opens, create a list of cup and handle pattern stocks that satisfy these conditions

RS Rank must be at least 92
Industry Rank must be in the top 50 percentile (i.e. have a rank less than 111 in our industry ranking scheme
Average daily volume >= 100,000.
Positive Quarterly Earnings score >= 6/10 (CEF2)
Quarterly Earnings Growth Acceleration score >= 2/10 (CEF3)

You can create this list of stocks using the filter settings shown below.
Check the market trends published each day on our Monitor > Market Analysis page or in our daily email
If market trend is positive, buy on alerts meeting these criteria with a stop limit 5% above the breakout price (BoP)
Sell at next open if closing price less than BoP or volume at end of breakout day is less than 1.25 times average 50 day volume
Monitor the closing price each day and set a trailing stop at 7% below the highest close since breakout.
Sell if trailing stop met intraday.

These filter setting on the cup and handle watchlist will select stocks meeting these criteria and also set your alerts to include these stocks:

Major Index Summary
Index	Value	Change Week	Change YTD	Trend¹
Dow	16093.5	0.66%	-7.64%	Down
NASDAQ	4591.18	2.29%	-8.31%	Down
S&P 500	1906.9	1.41%	-6.7%	Down
¹The Market Trend 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.

Major Index Summary

Index

Value

Change Week

Change YTD

Trend¹

Dow

16093.5

0.66%

-7.64%

Down

NASDAQ

4591.18

2.29%

-8.31%

Down

S&P 500

1906.9

1.41%

-6.7%

Down

¹The Market Trend 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.

Best Performing Index
1 Week	13 Weeks	26 Weeks	Year-to-Date
NASDAQ Composite 2.29 %	S&P 500 -8.11 %	S&P 500 -8.31 %	S&P 500 -6.7 %

Best Performing Index

1 Week

13 Weeks

26 Weeks

Year-to-Date

NASDAQ Composite
2.29 %

S&P 500
-8.11 %

S&P 500
-8.31 %

S&P 500
-6.7 %

Best Performing Industry (by average technical score over each period)
1 Week	3 Weeks	13 Weeks	26 Weeks
1 Week	3 Weeks	13 Weeks	26 Weeks
Regional - Northeast Banks	Regional - Mid-Atlantic Banks	Auto Parts Stores	Cigarettes

Best Performing Industry (by average technical score over each period)

1 Week

3 Weeks

13 Weeks

26 Weeks

1 Week

3 Weeks

13 Weeks

26 Weeks

Regional - Northeast Banks

Regional - Mid-Atlantic Banks

Auto Parts Stores

Cigarettes

Most Improved Industry (by change in technical rank²)
Publishing - Newspapers + 46	Drug Related Products + 97	Research Services + 171	Publishing - Newspapers + 145
Charts of each industry rank and performance over 12 months are available on the site

Most Improved Industry (by change in technical rank²)

Publishing - Newspapers
+ 46

Drug Related Products
+ 97

Research Services
+ 171

Publishing - Newspapers
+ 145

Charts of each industry rank and performance over 12 months are available on the site

Top Breakout Choices: Stocks on our Cup-and-Handle list with best expected gain if they breakout
Category	Symbol	Company Name	Expected Gain¹
Best Overall	CLCD	CoLucid Pharmaceuticals, Inc.	95
Top Technical	CLCD	CoLucid Pharmaceuticals, Inc.	95
Top Fundamental	QIHU	Qihoo 360 Technology Co. Ltd.	42
Top Tech. & Fund.	QIHU	Qihoo 360 Technology Co. Ltd.	42
¹This is the gain predicted by our Expected Gain model within 6 months of breakout which uses the volume on breakout as a predictive term. Because the model variance is +/- 38% the expectation can be negative.

Top Breakout Choices: Stocks on our Cup-and-Handle list with best expected gain if they breakout

Category	Symbol	Company Name	Expected Gain¹
Best Overall	DF	Dean Foods Company	42
Top Technical	NNN	National Retail Properties	21
Top Fundamental	NNN	National Retail Properties	21
Top Tech. & Fund.	NNN	National Retail Properties	21
¹This is the gain predicted by our Expected Gain model within 6 months of breakout which uses the volume on breakout as a predictive term. Because the model variance is +/- 38% the expectation can be negative.