Weekly Newsletter 03/12/05
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
 Weekly Commentary  

Oil price rises and their reciprocal effect on the dollar continued to hold the markets on a string this week. When oil prices retreat, the markets gain and when they rise, the markets fall. Rising oil prices threaten higher inflation, which raises business costs and also interest rates, while the falling dollar could cause foreign investors to 'rebalance' their portfolios to the disadvantage of the US. Consequently, while the economy appears healthy, investors are cautious and this caution caused the markets to close lower this week: the DJI lost 1.5%, the S&P 500 1.8%, and the NASDAQ 1.4%. On Wednesday, the NASDAQ suffered its only distribution day for the week, but that was sufficient to cause our market model to signal an exit from this market. With world demand for oil expected to rise this year, it is difficult to see how the oil factor can be removed from consideration, and the dollar is likely to remain under pressure with the US trade deficit continuing to grow and no prospect of long term deficits being diminished. To counteract these external pressures on the markets we need some good news from the home front. Several large companies will report earnings in the coming week and a strong showing could reverse the short term downward trend. It is worthwhile noting that although we are in a short term correction, the market signals for the DJI and S&P 500 remain positive and the overall trend is still upwards. Short term corrections can be postive as they allow new patterns to form from which new leaders can emerge.

The number of breakouts fell dramatically to only 16 this week, with the average breakout losing 1% by the end of the week. A look at the breakout Report shows that stocks with strong technicals, but relatively weak fundamentals, are being successful. Of the 16 breakouts, only one rated a '4' for fundamentals on our CE Zone map. Examples are OTIV, which gained 10.3% after breakout with a CE Zone of 4-2 (our CE Zone methodology is described here) and NTE which gained 9.6% after breakout with a CE Zone of 4-3. While breakouts did not perform well this week, they still beat the markets. Overall, the average rate of return is still 58%, even allowing for an 8% stop loss, and 78% of breakouts gain more than 5%. In our Top Tip this week, we answer a subscriber's question about the performance after breakout from a high handle.

We issued 20 alerts based on our new ShortsaleWatch list this week of which 14 closed down for the week. SNDA lost 9.4%, VCLK 7.2% and PMTC 5.3%.

Reflecting the continuing rise in oil prices, Oil and Gas continued to be the best performing sector, as it has been for at least the last 26 weeks.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 10774.4 -1.52% -0.08% enter
NASDAQ 2041.6 -1.4% -6.15% exit
S&P 500 1200.08 -1.8% -0.98% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-1.4 %
Dow Jones
0.08 %
Dow Jones
-0.15 %
Dow Jones
-0.08 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Oil & Gas-Drilling Oil & Gas-Drilling Oil & Gas-Drilling Oil & Gas-Drilling
 Most Improved Industry (by change in technical rank2)
+ 32
+ 47
Energy-Other Sources
+ 100
Energy-Other Sources
+ 113
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 (similar to IBD). The site also shows daily industry movements.
 Weekly Breakout Report How confirmed breakouts performed this week
# of Breakouts
Period Average1
Max. Gain During Period2
Gain at Period Close3
This Week 16 24.92 2.44% -1.01%
Last Week 47 25.15 5.93% -1.55%
13 Weeks 334 N/A 13.1%
Breakout Count for Week
Electr-Misc Products
Real Estate/ REIT
Real Estate-REIT
Electr-Measuring Instruments
Healthcare-Nursing Homes
Home-Audio/Video Prods
1The average number of breakouts in each week over the previous 13 weeks.
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.
 Top Breakout Choices Stocks on our Cup-and-Handle list with best expected gain if they breakout
Company Name
Expected Gain1
Best Overall NVI National Vision, Inc. 97
Top Technical VRST Verisity Ltd. 25
Top Fundamental AMHC American Healthways, Inc. 23
Top Tech. & Fund. COH Coach, Inc. 13
1This is the gain predicted by our Expected Gain model if the stock breaks out. Expected Gains for all cup-and-handle stocks are published on our site.
 Top Second Chances Stocks that broke out this week and are still in buyable range
Company Name
Expected Gain1
Best Overall ORBK Orbotech Ltd. 51
Top Technical ICUI ICU Medical, Inc. 45
Top Fundamental HIBB Hibbett Sporting Goods, Inc. 34
Top Tech. & Fund. HIBB Hibbett Sporting Goods, Inc. 34
1This is the gain predicted by our Expected Gain model after the stock has broken out which uses the volume on breakout as a predictive term.
 New Features this Week Additional Value that we added this week

There were no new features added this week.

This Week's Top Tip Tips for getting the most out of our site

Breakout Performance from High Handles

This analysis contained errors and has been withdrawn. t was corrected in the newsletter of 03/19/05.

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