Weekly Newsletter 08/06/05
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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  

Market Summary

The markets gave up their recent gains this week as all three of the major indexes retreated. The DJI lost 0.78%, the NASDAQ Composite lost 0.32% and the S&P 500 gave up 0.63%.

For the DJI, this was the second successive week of losses with weekly volume rising so this counts as a distribution week for the Dow. A look at the daily chart shows that it fell through support on Friday but is at the lower Bollinger Band, so we may see a recovery next week. If not, then we could see the DJI fall to the next support level at the former resistance level of about 10,400.

The NASDAQ suffered its first loss in 6 weeks but volume was lower than last week The index experienced only one distribution day, on Wednesday, which was only the second over the last 20 sessions, as shown by our equivolume market chart (equivolume charts display price and volume action together on a single chart with the width of the bar being proprtional to the volume. Together with the annotations we apply, they are an excellent overview of market trends):

The S&P 500 is performing similarly to the NASDAQ Composite. This was the first down week out of the last the last six.

In summary, the large cap industrials, that are most sensitive to energy costs, are continuing to weaken, while the broader markets are still consolidating.

There were 44 confirmed breakouts this week coming again from energy, oil and gas and healthcare sectors, which have led the breakout count for most of the year. There were few spectacular breakouts, with all of them closing within +/- 5% of their pivots except for MFLX (Multi-Fineline Electronix) which gapped-up on Thursday on better than expected earnings after 6 handle days of above average volume gains, and rose to 16.14% above its pivot before closing for a 12.32% gain. It went on to gain another 4% on Friday to close the week for a gain of 16.55% over its pivot.

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 New Features this Week Additional Value that we added this week

Our backtest feature was enhanced this week and is described in this week's top tip.

Our forums were also upgraded to the latest version of the Phorum software.

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

Backtesting On Breakout and After Breakout Strategies

One of the most appreciated features of breakoutwatch.com is the ability for subscribers to set filters on watchlists so they will only be alerted when a stock meeting their personal preferences attempts to breakout. We recently described how our backtest feature allows you to optimize your filter selections in our newsletter of 6/18/05. Since then we've made several enhancements to this feature which make it even more useful, whether you trade when receiving a breakout alert or wait until the breakout is confirmed.

Firstly lets review how to use our filters. Filters can be set on any watchlist parameter and the logic to be used (either '>=' or '<=' ) is toggled by clicking on the logic operator. Here's an example:

These filters can then be saved by clicking the 'Save' button and then only stocks meeting the filter criteria will be shown on the watchlist and you will only receive email alerts on stocks meeting the filter criteria.

To see how stocks meeting your criteria have performed recently, click the backtest button, and you will see a pop-up like this:

You can set the number of days over which you want to backtest (65 is the default corresponding to the most recent 13 weeks of trading - fairly representative of recent market conditions). Since breakout volume and breakout day gain are not known before breakout, leave them blank if your investment style is to buy on the day of breakout.

Clicking 'Go' will quickly give you the breakout performance of your filters compared to all breakouts over the chosen period. Here's the result, showing how the filters improved the return over all breakouts, and the filters that were used:

Now we see that our filters selected stocks that performed 50% better than the average over the 13 weeks. (That includes losses of 8% on 4 stocks that failed to reach at least 5% after breakout.) Since many stocks will not have reached their peak in this time period, this is just an indication of how well they will go on to perform.

If we prefer to buy when the breakout is confirmed, we can add additional backtest criteria. For example, set the breakout day volume to be at least 2.5 times average daily volume as at left and the result will be:

 

 

We can see that we will have fewer stocks to select for purchase, but our potential return has improved.

Finally, we can also see how breakouts perform when we select only stocks that also gained at least 5% on breakout. (We could also have dropped the volume constraint).

 

 

The filters and and additional breakout day values shown are for illustration only. Although the results shown are real, they are not necessarily the optimum values, either for filter selection or for breakout day values. But they do demonstrate the power of filters especially when combined with our backtest functions.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 10558 -0.78% -2.09% enter
NASDAQ 2177.91 -0.32% 0.11% enter
S&P 500 1226.42 -0.63% 1.2% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.32 %
NASDAQ Composite
0.52 %
NASDAQ Composite
1.99 %
S&P 500
1.2 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Oil & Gas-Cdn Integrated Oil & Gas-Cdn Integrated Oil & Gas-Cdn Integrated Oil & Gas-Drilling
 Most Improved Industry (by change in technical rank2)
Healthcare-Wholesale/Distrb
+ 63
Healthcare-Wholesale/Distrb
+ 47
Retail-Major Disc Chains
+ 94
Electr-Parts Distrib
+ 109
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 44 39.54 5.24% 0.48%
Last Week 44 38.85 9.43% 2.42%
13 Weeks 534 42.15 15.92%
7.13%
Sector
Industry
Breakout Count for Week
Energy
Energy-Other Sources
3
Oil & Gas
Oil & Gas-U S Explr/Prod
3
Computer Software
Comp Software-Healthcare
2
Healthcare
Healthcare-Nursing Homes
2
Internet
Internet-ISP/Content
2
Oil & Gas
Oil & Gas-Field Services
2
Banks
Banks-Foreign
1
Business Services
Business Svcs-Sec/Safety
1
Business Services
Business Svcs-Misc
1
Computer
Computer-Graphics
1
Computer
Computer-Services
1
Computer Software
Comp Software-Security
1
Computer Software
Comp Software-Enterprise
1
Containers
Containers
1
Diversified Operations
Diversified Operations
1
Electronics
Electr-Semicndtr Mfg
1
Electronics
Electr-Connectors/Components
1
Healthcare
Healthcare-Med/Dent Services
1
Healthcare
Healthcare-Biomed/Genetic
1
Healthcare
Healthcare-Drugs/Generic
1
Healthcare
Healthcare-Drugs/Ethical
1
Healthcare
Healthcare-Products
1
Insurance
Insurance-Prop/Casualty/TItl
1
Insurance
Insurance-Acc/Health
1
Internet
Internet-E:Commerce
1
Mining
Mining-Gold/Silver/Gems
1
Oil & Gas
Oil & Gas-Mach/Equip
1
Oil & Gas
Oil & Gas-Intl Integrated
1
Personal
Personal -Cosmetics
1
Personal
Personal-Shoes
1
Retail
Retail-Apparel
1
Telecomm
Telecomm-Equipment
1
Telecomm
Telecomm-Services US
1
Telecomm
Telecomm-Services Fgn
1
Transportation
Transportation-Ship
1
Transportation
Transportation-Air Frght
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 APLX APPLIX INC 131
Top Technical GEOI GEORESOURCES INC 71
Top Fundamental DRIV DIGITAL RIV INC 73
Top Tech. & Fund. GEOI GEORESOURCES INC 71
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 CAMP CALIFORNIA AMPLIFIER INC 107
Top Technical DATA DATATRAK INTL INC 66
Top Fundamental SAY SATYAM COMPUTER SERVICES LTD 57
Top Tech. & Fund. CTGI CAPITAL TITLE GROUP INC 86
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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