Weekly Newsletter 05/07/05
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
 Weekly Commentary  

Market Summary

The DJI and S&P 500 made modest gains this week while the NASDAQ gave a strong performance that caused our market model to change the signal to 'enter' for that market. The DJI closed 1.5% higher, the NASDAQ composite 2.38% higher and the S&P 500 gained 1.25%. Each of the major indexes is still down for the year so far, with the NASDAQ having the largest deficit at -9.6%.

The DJI is testing a resistance level that is evident on the chart below at about 10400, which also happens to coincide with the psychological barrier of the 200 day moving average. It fell back from that level on both Thursday and Friiday. If the DJI pulls back further from this level then we will likely see a confirmation of the downtrend portended by the double-top of 12/27/04 and 03/07/05.

Since the NASDAQ is the incubator for new companies, this is market which is of most interest to CANTATA investors. The NASDAQ Composite provided a strong follow through on Wednesday when it gained 1.51% on the fourth day of the rally that began on April 29. The NASDAQ paused slightly on Thursday and then rose again on Friday. We have now seen six consecutive days of higher highs and higher lows for this index, which is a cause for cautious optimism that this index is now on the path to recovery.

Resistance at 1962 was penetrated briefly on Thursday and then the index closed 5 points above that level on Friday. If that level holds, then there is the psychological barrier of the 200 day moving average to overcome at around 1990. The next resistance level is at 2022 and after that 2100.

The S&P 500 is consolidating between its 200 and 50 day moving averages.

Breakouts

The number of successful breakouts was again 50% above the recent average at 35 with an average maximum gain of 5.3%. Some of the strongest performers were AQNT which closed the week 13.6% above its pivot, CCRT which gained 17.7% before slipping back for an 11.5% gain, and SWN which gained 10.6%. Five other stocks gained more than 5%. Each of these strong breakouts had moved up on higher volume on the day before breakout, a characteristic of strong breakouts that we drew attention to last week.

Breakdowns

On a week when the markets moved higher, there were just 5 confirmed breakdowns.

Details of all the breakouts and breakdowns are available on the site.

The change in market signal for the NASDAQ and the increasing number and strength of breakouts are indicators that the opportunities for making significant gains from breakouts are increasing. In this weeks top tip we look at how to take advantage of this situation.

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 New Features this Week Additional Value that we added this week

New Home Page

There were no new features added this week.

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

Choosing Breakouts that will give the Best Returns

With a new rally gaining steam, there will be more breakouts to choose from. Since very few of us can buy all breakouts, its natural to want to know which ones will offer the best returns. There is no way of knowing for certain with any individual stock, of course, but we can identify the characteristics that improve the chances of success. Over the last 6 months I have written about those factors in this space, so today I will summarize the top half-dozen and provide links to the original article that described them.

1. Expected Gain is the best overall predictor of a stock's likely future performance after breakout from a cup-with-handle base. It is derived from all the technical and fundamental data we have on the stock on the day of the breakout.

2. Handle action can indicate a strong breakout. Stocks that move up on increased volume on the day before breakout have a 17% stronger breakout than others.

3. Technical condition is more important than fundamental strength when determining if a stock will breakout. Most breakouts come from zone 4-3 in our CANTATA Evaluator zone methodology.

4. Higher pivots are more successful. Over 80% of successful cup-with-handle breakouts come from pivot points that are at least 90% of the left cup height.

5. Returns can be improved by minimizing downside risk. Before buying a breakout, look at the likely support level if the breakout fails.

6. Improving your returns also involves minimizing losses. Use our Market Signals to decide when to raise cash.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 10345.4 1.5% -4.06% enter
NASDAQ 1967.35 2.38% -9.57% enter
S&P 500 1171.35 1.25% -3.35% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
2.38 %
Dow Jones
0.8 %
S&P 500
-0.83 %
S&P 500
-3.35 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Healthcare-Hospitals Healthcare-Hospitals Oil & Gas-Drilling Oil & Gas-Drilling
 Most Improved Industry (by change in technical rank2)
Metal Prds-Distributors
+ 56
Food-Meat Products
+ 51
Building-Maint & Services
+ 76
Food-Candy
+ 111
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 35 23.15 5.31% 2.97%
Last Week 35 24.23 5.53% 1.07%
13 Weeks 350 26.85 9.94%
-1.64%
Sector
Industry
Breakout Count for Week
Computer
Computer-Services
3
Healthcare
Healthcare-Biomed/Genetic
3
Finance
Finance-Consumer Loans
2
Healthcare
Healthcare-Products
2
Real Estate/ REIT
Real Estate-REIT
2
Aerospace & Defense
Aerospace & Defense-Mfg
1
Auto & Truck
Auto & Truck-Repl Prts
1
Banks
Banks-West/Southwest
1
Building
Building-Residentl/Comml
1
Business Services
Business Svcs-Advertising
1
Electronics
Electr-Misc Products
1
Finance
Finance-Savings&Loan
1
Healthcare
Healthcare-Drugs/Ethical
1
Healthcare
Healthcare-Outpnt/HmCare
1
Insurance
Insurance-Prop/Casualty/TItl
1
Insurance
Insurance-Diversified
1
Internet
Internet-ISP/Content
1
Internet
Internet-Software
1
Leisure
Leisure-Products
1
Oil & Gas
Oil & Gas-Field Services
1
Oil & Gas
Oil & Gas-U S Explr/Prod
1
Personal
Personal-Soap & Clng
1
Retail
Retail-Building Products
1
Steel
Steel -Specialty
1
Telecomm
Telecomm-Wireless Services
1
Telecomm
Telecomm-Services US
1
Utility
Utility-Gas
1
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
Category
Symbol
Company Name
Expected Gain1
Best Overall SYKE SYKES ENTERPRISES INC 70
Top Technical CTMI CTI MOLECULAR IMAGING INC 14
Top Fundamental RRGB RED ROBIN GOURMET BURGERS IN 19
Top Tech. & Fund. RRGB RED ROBIN GOURMET BURGERS IN 19
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
Category
Symbol
Company Name
Expected Gain1
Best Overall TALK TALK AMERICA HLDGS INC 63
Top Technical TALK TALK AMERICA HLDGS INC 63
Top Fundamental CAI CACI INTL INC 14
Top Tech. & Fund. LKQX LKQ CORP 20
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. Because the model variance is +/- 38% the expectation can be negative.

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