Weekly Newsletter 03/31/07
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
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 Weekly Commentary  

Market Summary

The end of the first quarter saw the markets consolidate as they give up much of the gains made following the release of the Federal Open Markets Committee statement 10 days ago. That statement invigorated investors as it appeared the Fed was becoming more neutral on its interest rate policy and implied that a rate reduction may be possible later in the year. But Fed Chairman Bernanke took pains to correct that interpretation on Wednesday when he told Congress that the Federal Reserve had not intended to imply that rates may go one way or the other and that inflation risks remain. The markets fell sharply on this re-interpretation of the Fed's position and delivered a fourth distribution day in fourteen days for the NASDAQ. This put the index one distribution day shy of another reversal of our market signal but a slight gain on Thursday and then again on Friday allowed the index to dodge the bullet. By Friday, the Fed Chairman's warning that inflation risks remain was confirmed when the Personal Consumption Expenditure report showed a higher than expected increase to a year-on-year rate of 2.4%, well above the Fed's declared target of below 2%.

In his statement to Congress, Bernanke was optimistic about prospects for the economy and countered the conventional wisdom that we are nearing the end of the business cycle and that contraction was inevitable. On this point too he was supported on Friday with evidence of industrial expansion in the Chicago area and continued strong consumer spending. With inflation increasing and the economy showing more strength than expected, it is difficult to imagine that investor's long hoped for cut in interest rates will materialize.

Other influences on trading this week were a rise in the price of oil to a six-month high and rising international tension. For the week, the DJI slipped 1.02%, the NASDAQ Composite lost 1.11% and the S&P 500 gave up 1.06%. This was also another distribution week for the major indexes, who have not registered an accumulation week since the week ending January 12. This is illustrated for the NASDAQ in the chart below.

Despite this week's consolidation, the rally that began on March 14 continues although we have a pessimistic bias about the outcome of the rally due to weak upside volume and overall distribution. The up-days have not been accompanied by strong volume, which implies investor uncertainty that the rally can continue, whereas volume on down-days has generally been higher. Overall, volumes are below average and all three major indexes met resistance at their 50 day moving average levels. On the plus side, employment remains high, consumer sentiment is still quite strong and the economy refuses to roll over despite the sub-prime lending wipe-out and continued housing market weakness. Many observers believe the housing market will deteriorate further as credit is tightened and fewer borrowers will qualify for loans under tighter lending guidelines. This in itself could cause the Fed to lower rates to bring more borrowers into play and stabilize markets, but the negative effects on an already weakened dollar could cause them to eschew this course, in which case house values will continue to fall until an equilibrium is reached. Bill Gross at PIMCO estimates that house prices will fall 20% if mortgage rates remain unchanged.

As stocks have continued to rally since March 14, more have come into striking range of the pivot points they set before the February 27 collapse and this has resulted in a slight increase in the number of breakouts to 16 this week with an average gain by week's end of 0.8%.

 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

Server Upgrade Coming Next Weekend

As regular subscribers to our site know, we have continuously improved and expanded our service over the nearly six years that we have been operating. As we add new features it takes longer each day to prepare the watchlists and reports for the next day's trading and recently we have experienced a number of delays in completing processing in a timely manner. This week we also suffered a rare database server outage and Wednesday's processing was not completed until 6am EDT on Thursday morning.

To address these issues we are moving to a new server and will complete this over the Easter weekend. Most of the move will be done next Friday, and the site may be intermittently unavailable on that day.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 12354.3 -1.02% -0.87% enter
NASDAQ 2421.64 -1.11% 0.26% enter
S&P 500 1420.86 -1.06% 0.18% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-1.02 %
S&P 500
1.14 %
NASDAQ Composite
3.46 %
NASDAQ Composite
0.26 %
 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 Tobacco Products, Other
 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 16 19.69 3.25% 0.8%
Last Week 12 19.38 9.47% 3.91%
13 Weeks 344 20.46 9.32%
Breakout Count for Week
Semiconductor - Integrated Circuits
Closed-End Fund - Debt
Oil & Gas Equipment & Services
Beverages - Soft Drinks
Meat Products
Medical Appliances & Equipment
Medical Instruments & Supplies
Metal Fabrication
Heavy Construction
General Contractors
Communication Equipment
Water 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 ICOP ICOP Digital Inc 86
Top Technical STTX Steel Technologies Inc 30
Top Fundamental SWHC Smith & Wesson Hldg Corp 58
Top Tech. & Fund. SWHC Smith & Wesson Hldg Corp 58
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 CCC Calgon Carbon Corp 74
Top Technical CCC Calgon Carbon Corp 74
Top Fundamental CBI Chicago Bridge & Iron Nv 24
Top Tech. & Fund. CBI Chicago Bridge & Iron Nv 24
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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