Weekly Newsletter 11/04/06
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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  

Tradewatch Day Trade Strategy Returns a Conservative 77% year-to-date - see this weeks tip

Market Summary

There was clearly a change of mood in the markets this week as investors grappled with economic news which showed that the rate of economic contraction may be higher than is consistent with a soft landing, inflation at the wholesale level is still a present danger, retail sales, as forecast by Wal-Mart are flagging, and the housing market, the engine of the bull market, continues to fall. Employment is high so employers are increasing wage rates to attract or retain workers while at the same time productivity is flat, adding to inflationary pressures. It all adds up to bad news for the markets as they look to the prospects for fourth quarter earnings. For the week, the DJI slipped 0.86%, the NASDAQ Composite lost 0.84% and the S&P 500 gave up 0.95%.

We have always maintained that current and annual earnings were just a rear view mirror and now that the third quarter earnings season is mostly behind us, this is a time to pay attention to technical indicators. For the DJI and S&P 500 this was the first week of losses in six weeks and it came on lower volume so the immediate signs are that we are in a consolidation and the upward trend is still predominant. I venture to say though that the bad news summarized above will continue to weigh on these indexes in the short term. The NASDAQ situation looks more tenuous. A head and shoulders pattern was completed this week as the index fell through its neckline on heavy volume. While it is too soon to signal that its time to move totally to cash (we have only had three distribution days in the last fifteen sessions) my sense is that it is time to take some money off the table.

For a more detailed analysis of the underlying factors that will affect the markets in the coming weeks, you may find Roubini's Global Economic Blog interesting. Also, the yield curve continues to be inverted and Colin Twiggs reports that the risk of recession as measured by the Wright model has increased to 41% in the next four quarters.

The number of breakouts fell to 35 this week, but by week's end they had gained an average of 1.77%, once again comfortably beating the markets.

Get a 14 day Trial of our premium 'Platinum' service and TradeWatch for just $9.95 and if you subsequently subscribe to any subscription level we will credit your $9.95 to your subscription.

14 Day Platinum Trial
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 New Features this Week Additional Value that we added this week

New Industry Grouping Structure

Our new structure went into effect on Wednesday.

TradeWatch Day Trade List

The day's closing price and % return was added to the list.

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

TradeWatch Day Trade Strategy gives Minimum 77% Return

I was asked by a subscriber to add the day's closing price to the TradeWatch Day Trade history report. That's now been done and I'll add the closing price at the end of the Swing Trade period (2 weeks) next week.

The results show that while the average return to the intraday high is a very impressive 2.74%, if you wait to sell at the close, then the return drops to 0.63%. That's still not bad as the following analysis shows.

There were 183 trades year-to-date. The maximum number of trades per day was four and the average 1.5. The number of days on which a trade was made was 123.

For the sake of simplicity, suppose a capital of $20,000 and one trade is made per day, then

Investment per Trade:
$20,000
No of trades year-to-date:
123
Profit per Trade (0.63%):
$126
Profit year to date:
$15,498
Return on $20,000 capital:
77%

This will be reduced somewhat by brokerage but will still be quite a nice return and with reinvestment of the return each day this would be substantially higher

The trade is simple to initiate, because we provide a buy stop to give to your broker the night before. If your broker will execute a 'market on close' order, then the trade is simple to close also. Otherwise you need to give the order just before the close.

If you are able to monitor the trade during the day, then it should be possible to cut your losses sooner and also get closer to the average intraday high. Assuming you could achieve an average of 2% return (72% of the average daily high) then the return would be:

Investment per Trade:
$20,000
No of trades year-to-date:
123
Profit per Trade (2%):
$400
Profit year to date:
$49,200
Return on $20,000 capital:
246%

This last number is somewhat hypothetical, of course, but easily within the bounds of possibility, whereas the 77% return number is accurate, year-to-date, and the reality should be somewhere between the two.

Investment Advisors Using our Service

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.

PivotPoint Advisors, LLC takes a technical approach to investment planning and management. A breakoutwatch.com subscriber since May, 2004, they use breakouts, market signals, and now TradeWatch to enhance returns for their clients. Learn more at http://pivotpointadvisors.net or contact John Norquay at 608-826-0840 or by email at john.norquay@pivotpointadvisors.net.

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

Get a 14 day Trial of our premium 'Platinum' service and TradeWatch for just $9.95 and if you subsequently subscribe to any subscription level we will credit your $9.95 to your subscription.

14 Day Platinum Trial
(you will need to allow pop-ups from breakoutwatch.com to see the subscription form)


 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 11986 -0.86% 11.84% enter
NASDAQ 2330.79 -0.84% 5.69% enter
S&P 500 1364.3 -0.95% 9.29% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.84 %
S&P 500
-1.08 %
Dow Jones
1.08 %
Dow Jones
11.84 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
REIT - Healthcare Facilities REIT - Healthcare Facilities REIT - Industrial Beverages - Brewers
 Most Improved Industry (by change in technical rank2)
Aluminum
+ 54
Aluminum
+ 99
Long Distance Carriers
+ 213
Long Distance Carriers
+ 210
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 42.69 5.48% 1.77%
Last Week 90 43.85 6.08% 0.1%
13 Weeks 588 45.85 10.65%
2.44%
Sector
Industry
Breakout Count for Week
BANKING
Savings & Loans
2
COMPUTER SOFTWARE & SERVICES
Business Software & Services
2
DRUGS
Drug Manufacturers - Other
2
CHEMICALS
Agricultural Chemicals
1
COMPUTER SOFTWARE & SERVICES
Information Technology
1
COMPUTER SOFTWARE & SERVICES
Application Software
1
DIVERSIFIED SERVICES
Business Services
1
DIVERSIFIED SERVICES
Education & Training Services
1
DRUGS
Biotechnology
1
DRUGS
Drug Manufacturers - Major
1
ENERGY
Independent Oil & Gas
1
FINANCIAL SERVICES
Investment Brokerage - Regional
1
FINANCIAL SERVICES
Closed-End Fund - Equity
1
FOOD & BEVERAGE
Food - Major Diversified
1
HEALTH SERVICES
Specialized Health Services
1
HEALTH SERVICES
Medical Instruments & Supplies
1
HEALTH SERVICES
Medical Appliances & Equipment
1
INSURANCE
Insurance Brokers
1
INSURANCE
Property & Casualty Insurance
1
INTERNET
Internet Software & Services
1
LEISURE
Resorts & Casinos
1
MANUFACTURING
Industrial Electrical Equipment
1
MATERIALS & CONSTRUCTION
Cement
1
MEDIA
Advertising Agencies
1
METALS & MINING
Gold
1
REAL ESTATE
Real Estate Development
1
SPECIALTY RETAIL
Specialty Retail, Other
1
TELECOMMUNICATIONS
Telecom Services - Foreign
1
TELECOMMUNICATIONS
Diversified Communication Services
1
TRANSPORTATION
Regional Airlines
1
TRANSPORTATION
Shipping
1
UTILITIES
Electric Utilities
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 PRXI Premier Exhibitions Inc 104
Top Technical WARR Warrior Energy Service Corp 51
Top Fundamental ISE International Securities Excha 41
Top Tech. & Fund. ISE International Securities Excha 41
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 AOB American Oriental Bioengineering Inc 87
Top Technical AOB American Oriental Bioengineering Inc 87
Top Fundamental WST West Pharmaceutical Svcs 38
Top Tech. & Fund. WST West Pharmaceutical Svcs 38
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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