Weekly Newsletter 03/10/07
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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 stabilized and recovered moderately this week, although volumes tailed off toward the end of the week indicating that although buyers outnumbered sellers, there was not a lot of enthusiasm to push valuations higher in the face of perceived increased risk to the downside. The 1 month chart of the S&P 500 shows how dramatic the fall was when viewed from the short term and how volumes have calmed since.

The longer view though shows that the primary trend remains intact. A break of the 200-day moving average at 1350 would indicate the trend is under threat.

For the week, the DJI gained 1.34%, the NASDAQ Composite added 0.83% and the S&P 500 rose 1.13%. The market made a short term bottom on Monday and has risen 2% since then (S&P 500). We continue to advise not opening new positions until the upward trend is confirmed by a follow-through day. Our market model considers a follow through day to be when an accumulation day occurs between the 4th and 10th day of a rally and the index closes at least 1.5% above the close of the day when the index marked its intraday low. With volumes trending down, we have not experienced that condition yet.

Friday's trading illustrates the problems the markets face at the moment. There was positive economic news in falling unemployment and rising wages, which benefits consumers who account for 70% of economic activity, but this possible stimulus to consumer spending was offset by news that New Century Financial Corp. would stop writing new mortgages and may seek bankruptcy protection. This was the thirtieth sub-prime lender to close shop since December. Goldman Sachs estimated this week that the reduction in sub-prime lending will cut new home sales by 200,000, or 20%, this year. If they are correct, then housing demand has further to fall and consumers will feel less wealthy as the value of their homes falls. This will inevitably drag consumer spending down as consumers feel less wealthy and the economy will suffer, putting the 'soft-landing' theory at risk. It will be difficult for the markets to gain traction while the threat of recession continues.

The number of successful breakouts fell to 15 this week. Many stocks are beaten down and are too far from their pivot points to achieve a successful breakout, particularly while volume levels are depressed. There is more analysis of of this in this week's top tip below.

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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

Why there were few breakouts this week

Although the markets have stabilized and the upward trend has resumed this week, the number of breakout attempts and therefore the number of successful breakouts is down sharply. The reason is primarily because stocks are beaten down to well below their pivot price and have a significant hurdle to overcome before a breakout is possible.

On Thursday, March 8, there were 108 stocks on the CwH list. Most of them were well below their pivot price as the following chart shows. Only 10 stocks (9%) were within 2% of their breakout price (pivot).

In comparison, since the start of the year, 51% of successful breakouts were within 2% of the pivot price on the eve of their breakouts.

This confirms what we would suspect, that the closer a stock is to its pivot point, then the more likely it is to breakout successfully. Some stocks can surprise, of course, even when market conditions are unfavorable. On 2/28 Cooper Tire and Rubber (CTB) closed 13.4% off its pivot price but broke out the next day on six times average volume.

If the current upward trend is maintained, then more stocks will come within striking range of their pivot points and more alerts will be issued as they reach their pivot point intraday. For the breakout attempts to be successful, they will also need to reach 150% of their average daily volume as well. For that to happen, the current tepid volume levels will need to increase.

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.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 12276.3 1.34% -1.5% enter
NASDAQ 2387.55 0.83% -1.15% exit
S&P 500 1402.85 1.13% -1.09% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
1.34 %
Dow Jones
-3.21 %
S&P 500
-2.13 %
S&P 500
-1.09 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Tobacco Products, Other Tobacco Products, Other Tobacco Products, Other REIT - Healthcare Facilities
 Most Improved Industry (by change in technical rank2)
+ 54
+ 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 15 20.77 0.6% -1.3%
Last Week 42 22.38 0.36% -4.39%
13 Weeks 364 23 9.02%
Breakout Count for Week
Closed-End Fund - Debt
Savings & Loans
Information Technology
Office Supplies
Business Services
Oil & Gas Equipment & Services
Diversified Investments
Investment Brokerage - National
Closed-End Fund - Equity
Processed & Packaged Goods
Discount, Variety Stores
Grocery Stores
Auto Dealerships
Electric Utilities
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 SMTK 108
Top Technical FRK Florida Rock Industries 42
Top Fundamental CAM Cooper Cameron Corp 35
Top Tech. & Fund. TALX Talx Corporation 35
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
Best Overall IGTE Igate Corporaion 97
Top Technical FC Franklin Covey Co 63
Top Fundamental IGTE Igate Corporaion 97
Top Tech. & Fund. IGTE Igate Corporaion 97
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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