Weekly Newsletter 08/27/05
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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  

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.

Market Summary

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%.

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 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

Alert Monitor Status

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:

  • Email alerts are issued only at a point in time when the breakout alert conditions are met. The Alert Monitor continuously updates price and volume after an alert so you can see if the breakout conditions are still met
  • Stocks appear on the monitor as soon as their breakout price is met even though the volume projection is below the necessary breakout volume. This allows you to anticipate breakout alerts, especially when combined with the intraday cumulative volume chart accessible from the monitor.
  • Stocks automatically appear on the alert monitor when their price meets the BoP target. To achieve the same result with your own monitoring software, you would have to pre-load watchlist stocks into your monitor.
  • The intraday chart shows price and volume trends for stocks on the alert monitor. This chart can be particularly useful for identifying trends when the display interval is set to 5 minutes or longer.
  • Historical charts accessed from the monitor include the day's real-time quote data.

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:

1. Bollinger Bands provide a relative definition of high and low.
7. Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.
8. Closes outside the Bollinger Bands can be continuation signals, not reversal signals
15. Finally, tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.

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
• On-going communication, guidance, and consultation
• An environment that working together with their clients will help them reach their financial goals

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 or e-mail gdragel@traderightsecurities.com.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 10397.3 -1.53% -3.58% enter
NASDAQ 2120.77 -0.69% -2.51% enter
S&P 500 1205.1 -1.2% -0.56% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.69 %
NASDAQ Composite
-2.23 %
Dow Jones
-2.13 %
S&P 500
-0.56 %
 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-Cdn Integrated
 Most Improved Industry (by change in technical rank2)
+ 70
+ 65
Steel -Specialty
+ 92
Building-Maint & Services
+ 101
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 19 36.38 5.2% 1.37%
Last Week 22 37.77 6.25% 1.44%
13 Weeks 491 39.08 14.99%
Breakout Count for Week
Finance-Misc Services
Business Services
Business Svcs-Staffing
Business Services
Business Svcs-Printing
Computer Software
Comp Software-Financial
Electr-Semicndtr Mfg
Electr-Misc Products
Healthcare-Nursing Homes
Retail-Auto Parts
Steel -Producers
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 APLX APPLIX INC 117
Top Fundamental ABNK Amegy Bancorporation 48
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
Top Technical CVO Cenveo Inc. 75
Top Fundamental KNOT Knot, Inc. (The) 72
Top Tech. & Fund. KNOT Knot, Inc. (The) 72
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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