Weekly Newsletter 01/14/06
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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 major indexes consolidated their gains of the first week of the year and the current rally remains strong despite some profit taking this week after the indexes set new four-year highs. There were some early earnings disappointments which gave investors pause but the markets continue under accumulation. We have not seen a distribution day so far this year. The DJI was virtually unchanged with a small 0.01% gain while the NASDAQ added 0.5% and the S&P 500 gained 0.17%. The NASDAQ looks particularly well positioned from a technical perspective as it continues to ride above the rising wedge we discussed last week.

The markets are closed on Monday and when they open on Tuesday investors will focus on earnings reports and the interest rate outlook. The consensus among analysts appears to be that earnings will need to be above expectations for the markets to move higher than their present levels. Analysts also generally agree that the Fed will raise interest rates one more time in January but investors will be watching for confirmation that the Fed will pause interest rate increases at their March meeting. Any indications to the contrary could cause a pullback

The number of breakouts fell back this week as last weeks euphoria abated somewhat. The number was still well above the 13 week average though and the average gains by week's end were just over 2% and 6.6% for the year, comfortably beating the major indexes. Our new premium service TradeWatch Best Return stocks are up 8.3% over the suggested buy stop price and 10.8% above their breakout price.

The Oil & Gas sector continues to be very active with seven breakouts coming from that group this week.

Machinery Construction/Mining continues to be the top ranked industry by our technical criteria while Energy-Other Sources is the most improved industry gaining 50 places in our technical rankings.

 

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 New Features this Week Additional Value that we added this week

A new TradeWatch History report was added that shows why a TradeWatch stock could not have been bouight at the the suggested buy stop price.

An average volume line was added to the Industry Analysis volume charts

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

Should You Sell an Unconfirmed Breakout?

Each day we send out alerts on stocks on our watchlists that are attempting to breakout. A breakout attempt occurs when a stock meets or exceeds its pivot price and the projected daily volume is at least 1.5 times average daily volume (ADV). At the end of the day we report all breakout attempts that were confirmed, that is, they stayed above their pivot price and volume was at least 1.5 times ADV. The question arises as to what to do when you have purchased a breakout attempt but it was not confirmed at the end of the day.

Often a stock will continue to perform well, even though a breakout was not confirmed. An example is ATLS which attempted to break out from a cup-with-handle pattern on November 11, 2005. The breakout was not confirmed but ATLS went on to gain 40%. A review of the chart shows what happened:

Because a new pivot was set while attempting the breakout on 11/17 the stock was dropped from the CwH watchlist. If it had then formed a new handle then it would have reappeared on the list. In this case, however it hardly paused for breath before making a substantial run.

The question then arises, if you had bought ATLS on 11/17 because you received our email alert, should you have held on or sold it when we reported that the breakout had failed?

A breakout can be unconfirmed because it fails on price (FP), meaning that it does not close at or above its pivot price, fail on volume (FV), meaning that the volume was not at least 1.5 times its ADV, or fail on both. We looked at all stocks that attempted to breakout but failed since April 2003. We classified them as a success if they went on to gain at least 5% over their pivot price and a failure if they fell to 8% or more below their pivot price. Here's what we found.

Unconfirmed Reason
Count
% Successes
% Failures
FB
1070
57
37
FV
1214
71
24
FP
896
54
42
All
3180
62
33

So in all cases, the odds are in your favor that the stock will still go on to make at least a 5% gain, with a failure on volume presenting the best opportunity.

Investment Advisors Using our Service

If you would like to be listed here, please contact us. As a service to those who support us, there is no additional charge to be listed here.

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”. 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
Signal
Dow 10959.9 0.01% 2.26% enter
NASDAQ 2317.04 0.5% 5.07% enter
S&P 500 1287.61 0.17% 3.15% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
0.5 %
NASDAQ Composite
3.27 %
NASDAQ Composite
4.24 %
NASDAQ Composite
5.07 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Machinery-Const/Mining Machinery-Const/Mining Machinery-Const/Mining Oil & Gas-Cdn Integrated
 Most Improved Industry (by change in technical rank2)
Energy-Other Sources
+ 50
Energy-Other Sources
+ 54
Electr-Scientific Instruments
+ 128
Mining-Gold/Silver/Gems
+ 169
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 34.08 4.77% 2.07%
Last Week 65 31.15 9.95% 6.6%
13 Weeks 494 34.46 14.66%
8.5%
Sector
Industry
Breakout Count for Week
Oil & Gas
Oil & Gas-U S Explr/Prod
3
Finance
Finance-Invest Management
2
Healthcare
Healthcare-Products
2
Internet
Internet-ISP/Content
2
Metal Prds
Metal Prds-Pipe/Fab/Misc
2
Retail
Retail-Apparel
2
Banks
Banks-Northeast
1
Building
Building-Residentl/Comml
1
Building
Building-Products/Misc
1
Business Services
Business Svcs-Staffing
1
Computer
Computer-Services
1
Computer
Computer-Networking
1
Computer
Computer-Storage Devices
1
Computer Software
Comp Software-Healthcare
1
Electronics
Electr-Misc Products
1
Electronics
Electr-Semicndtr Mfg
1
Energy
Energy-Other Sources
1
Finance
Finance-Savings&Loan
1
Healthcare
Healthcare-Drugs/Generic
1
Insurance
Insurance-Prop/Casualty/TItl
1
Insurance
Insurance-Life
1
Machinery
Machinery-Const/Mining
1
Metal Prds
Metal Prds-Distributors
1
Mining
Mining-Gold/Silver/Gems
1
Oil & Gas
Oil & Gas-Cdn Expl/Prd
1
Oil & Gas
Oil & Gas-Drilling
1
Oil & Gas
Oil & Gas-Intl Integrated
1
Oil & Gas
Oil & Gas-Prod/Pipeline
1
Paper
Paper
1
Personal
Personal -Cosmetics
1
Pollution Control
Pollution Control-Services
1
Real Estate/ REIT
Real Estate Management
1
Special
Special-ClsdEndFunds/Bond
1
Telecomm
Telecomm-FiberOptics
1
Telecomm
Telecomm-Equipment
1
Utility
Utility-Water
1
Utility
Utility-Electric
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 107
Top Technical DSW DSW Inc. 47
Top Fundamental WTI W&T Offshore Inc. 45
Top Tech. & Fund. ASF ADMINISTAFF INC 46
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 ERS EMPIRE RES INC DEL 101
Top Technical SHOE SHOE PAVILION INC 88
Top Fundamental TOMO TOM Online Inc. 45
Top Tech. & Fund. TOMO TOM Online Inc. 45
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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