Weekly Newsletter 05/19/07
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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

Last week we noted that the market had a preference for large cap stocks and explained some of the reasons for that. The trend continued this week with the DJI and S&P 500 making gains of 1.73% and 1.12% respectively but the NASDAQ again lost ground by 0.15%. This was the seventh straight positive week for large cap stocks and the fourth accumulation week out of those seven. In contrast, the NASDAQ suffered its second consecutive weekly loss and volume increased showing that distribution is accelerating. Our market model teetered on again declaring an 'exit' for the NASDAQ but was saved by an accumulation day on Friday. The distribution day count has now fallen back to three in seven days.

The economic news this week continued to be contradictory.

  • The Conference Board's Index of Leading Economic Indicators declined by much more than expected indicating that the economy may slow more quickly than previously thought. This may be good news for interest rates but if economic activity weakens then employment and consequently consumer spending will decline.
  • However, there were no signs of that occurring yet as jobless claims fell for the fifth straight weak. Continuing full employment may account for a higher than expected consumer sentiment rating reported on Friday.
  • The number of housing starts in April exceeded expectations, but the number of new building permits dropped sharply showing that the housing market slump is not yet over. This was confirmed by the National Association of Homebuilders which lowered its outlook for housing.

This uncertainty explains why institutional investors are 'dancing close to the door' by emphasizing liquid, large-cap stocks rather than more speculative investments. This trend actually began last November when nervousness about the economy and the impact of the housing market slump began to take hold. This is illustrated by the comparative RS line on the following chart.

The S&P 500 continues to trade outside its upper trend line and is closing in on its all time high set in March 2000. This will be a strong resistance level and a breakthrough would be a statement that the bull market has further to run.

 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

Technicals are More Important than Fundamentals when Choosing Breakouts

Since we started our site, we have become increasingly aware that the technical condition of a stock is more important than its fundamentals. We presented evidence confirming this almost two years ago. This week's breakouts provide another example. Of 16 breakouts from a cup-with-handle base, only 4 of them rated a '4' for fundamental strength but all 16 scored a '4' for technical strength according to our CE Zone methodology. The average gain by week's end of those with a '4' for fundamental strength was a healthy 3.93% but the stocks that only scored a '3' for fundamentals did much better with a 5.08% average gain. The table below, adapted from our daily breakout reports, shows the successful CwH breakouts for the week.

The fundamental's of a stock tell you all about the sales, earnings and ROI of a stock over the last few years, and these are a good, although imperfect, guide to what the stock may do in the future. However, the technicals (mainly price and volume recent performance) tell you what the market thinks of the stock now. In other words, the technicals represent the market's view of how it values the fundamentals as a guide to likely future earnings.

Cup-with-Handle Sustained Breakouts Week Ending 05/18/07
Symbol B'Out
B'out Day
B'out Vol
CE Cell
Current %
off BOP
*Gain at
Intraday High
05/18/07 PRX 28.10 28.30 382.82 4-3 28.3 0.71% 5.34%
05/18/07 EDO 32.21 32.45 161.99 4-3 32.45 0.75% 0.84%
05/18/07 DK 22.43 23.48 381.59 4-3 23.48 4.68% 5.22%
05/18/07 CPX 26.31 26.72 177.53 4-4 26.72 1.56% 2.62%
05/17/07 SGR 36.41 36.69 161.08 4-3 36.88 1.29% 3.05%
05/17/07 OMNI 10.45 10.96 451.98 4-4 11.23 7.46% 8.61%
05/17/07 HHGP 20.25 20.67 232.00 4-3 21.3 5.19% 5.73%
05/17/07 CTRP 73.46 78.07 653.67 4-3 79.48 8.19% 8.77%
05/16/07 TW 21.79 21.80 247.48 4-2 21.79 0.00% 0.87%
05/16/07 ONXX 31.28 31.30 152.95 4-2 31.53 0.80% 3.58%
05/16/07 IHG 25.96 27.20 474.17 4-3 27 4.01% 6.86%
05/16/07 IBN 46.94 47.66 299.74 4-3 47.85 1.94% 2.56%
05/16/07 CPA 65.17 67.89 236.83 4-4 65.93 1.17% 8.85%
05/15/07 PSMT 18.39 18.86 202.82 4-4 19.73 7.29% 7.83%
05/14/07 JBX 71.62 73.88 334.30 4-3 75.7 5.70% 11.06%
05/14/07 HHGP 19.29 19.48 158.67 4-3 21.3 10.42% 10.99%
Average Gain

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 13556.5 1.73% 8.77% enter
NASDAQ 2558.45 -0.15% 5.93% enter
S&P 500 1522.75 1.12% 7.36% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
1.73 %
Dow Jones
1.83 %
Dow Jones
4.93 %
Dow Jones
8.77 %
 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 24 18.46 2.82% 0.24%
Last Week 17 18.92 9.4% 3.19%
13 Weeks 301 20.15 11.9%
Breakout Count for Week
Oil & Gas Equipment & Services
Closed-End Fund - Debt
Closed-End Fund - Equity
Aerospace/Defense Products & Services
Foreign Money Center Banks
Regional - Mid-Atlantic Banks
Staffing & Outsourcing Services
Drugs - Generic
Semiconductor Equipment & Materials
Oil & Gas Refining & Marketing
Property & Casualty Insurance
Resorts & Casinos
Industrial Equipment & Components
Waste Management
REIT - Retail
Discount, Variety Stores
Regional Airlines
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 GVP Gse Systems Inc 99
Top Technical CCC Calgon Carbon Corp 57
Top Fundamental HURN Huron Consulting Group Inc 39
Top Tech. & Fund. THE Todco 16
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 DK Delek US Holdings Inc 49
Top Technical EDO Edo Corp 23
Top Fundamental CPX Complete Production Services Inc 21
Top Tech. & Fund. CPX Complete Production Services Inc 21
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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