|Weekly Newsletter 08/27/05|
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Open House on Breakout Alerts
Our new Alert Monitor service is still on beta test and is free to all subscribers and guests until August 31. It can be accessed from our Take Action - Alerts menu choice at breakoutwatch.com.
We have been pointing to developing market weakness for the last three weeks and that was confirmed this week. All three major indexes closed lower for the week and are now in negative territory for the year. The twin fears of rising oil prices dampening consumer spending and also fueling inflation are foremost in the minds of investors and the pessimism was reinforced by Alan Greenspan who warned on Friday that the paper wealth of higher home and stock prices could quickly disappear. He also warned against protectionism, trade imbalances and fiscal (meaning budgetary) imbalances. It is a shame he has only now found the courage to express strongly a truly conservative position on these issues. However, we are unlikely to see a speedy resolution to any of these difficult problems in the near to medium term, (and Maynard Keynes has told us what the long term holds for us). The fact is, we are facing an imbalance of energy supply and demand which will take years to be resolved and during which energy prices will remain high and profits will be squeezed.
We normally display a chart of each major index and discuss its prospects, but no graphics are needed to paint this week's picture.The DJI closed below its 50 and 200 day moving average on Tuesday and the 50 day moving average crossed the 200 dma to the downside on Wednesday - a further confirmation of weakness. The index is now below the support level at 10500 we identified last week and could test 10300 in the near future.
The NASDAQ Composite is below its 50 day moving average and has now fallen to the levels of last July 11 which was just 3 days after the current rally began. It is still above its 200 dma which could provide the next support level at about 2075. If not the next support level is 2040.
The S&P 500 is in a similar situation to the NASDAQ. It is below its 50 dma at 1205 with the probability that the 200 dma can provide support at around 1195.
The number of breakouts fell to 19, almost half the recent average. Those stocks that did breakout performed well, however. For the week they gained 1.4% and the average intraday high was 5.2%.
|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|
The alert monitor remains on beta test and accessible to all subscribers and guests until August 31 after which it will become available for $9.95 per month to all subscribers. A subscription form will be available from the Alert Monitor page from August 31. The value added by the alert monitor over our other services is:
A Short Discussion on Bollinger Bands
Our Technical Analysis (T/A) charts allow you to select Bollinger Bands (BBs) or Donchian Channels as an envelope around the (default) candlestick price chart. After they were introduced, it was suggested on the Breakoutwatch Forum that we develop a sell signal algorithm that would issue a sell alert when the upper channel was violated.
After doing further research, it is clear that this is not the purpose of the bands although they can be used in this way when combined with another non-correlated indicator. To learn more about BBs and trading methods using them, visit bollingerbands.com. The site offers 15 rules for the use of the bands, but the important ones which relate to their unsuitability as a sell indicator are as follows:
In fact, Bollinger says "The greatest myth about Bollinger Bands is that you are supposed to sell at the upper band and buy at the lower band".
The simplest buy/sell rule based on Bollinger Bands is to buy when the price crosses the 20 day moving average to the upside and to sell when it crosses it to the downside. Here's a simple example as applied to the NASDAQ Composite:
We will look further at sell rules in a future newsletter edition.
Investment Advisors Using our Service
If you are interested in basing part of your investment strategy on our service, but do not have the time, experience or confidence to do so on your own account, then consider using an investment advisor.
TradeRight Securities, located in a suburb of Chicago, is a full services investment management company and broker/dealer. They have been a subscriber, and user, of BreakoutWatch.com for some time now. They practice CANTATA and use Breakoutwatch.com as a “research analyst”.
They also provide:
• A hands-on approach through personalized service
You can learn more about TradeRight Securities at: www.traderightsecurities.com.
If you’re interested
in speaking to a representative, simply call them toll-free at 1-800-308-3938
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|Market Summary||Overview of market direction and industry rotation|
|Weekly Breakout Report||How confirmed breakouts performed this week|
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|
|Top Second Chances||Stocks that broke out this week and are still in buyable range|
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