Weekly Newsletter 06/16/07
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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

NASDAQ Vacillates but Outperforms DJI and S&P 500

We reported last week that investors had adjusted to the new expectation that interest rates will remain steady this year and that growth stocks were back in favor. That prediction looked a little shaky on Tuesday when our market model again reversed itself for the NASDAQ but low increases in the core producer price index and consumer price index reassured the markets that an interest rate rise would not be necessary to control inflation and two solid days of gains caused the model to reverse itself yet again on Friday. For the week, the NASDAQ Composite easily outperformed the other major indexes with a 2.07% gain while the DJI rose 1.6% and the S&P 500 gained 1.67%.

Although the NASDAQ made solid gains, volume was disappointing until Friday when it jumped up to 21% above the 50 day average. Volumes on the broader market were also up sharply on Friday. While this would normally be a sign of increasing confidence, Friday was also a 'quadruple witching' day which always generates much higher than normal volumes. Nevertheless, with two successive reports of tame core inflation at the producer and consumer level, Investors are now reassured that the interest rate environment will be stable for the foreseeable future.

The consumer is not so reassured however as they pay a higher price for food and gas. The overall increase in the CPI was a higher than expected 0.7% month-on-month and the effects of a higher cost of living were evident in a fall in consumer sentiment as measured by the University of Michigan. The short term effect of higher food and energy costs is to reduce discretionary spending which acts as a break on the economy so there is no need for the Fed to act to curb the higher headline inflation number.

The conditions for breakouts continue to be favorable. Of 23 breakouts this week, only 1 failed to show a profit by week's end, with a small loss of 0.24%, and the average gain was 3.35%. Our 'Top Tip' this week shows how to select the most successful breakouts based on recent market conditions.

 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

The Best Filters for Recent Market Conditions

Our backtest feature on the CwH watchlist provides you with a tool to identify the filters that work best in recent market conditions. The backtest feature and its use is described here.

We've done our own analysis for you and found that since April 1, the approximate date of the most recent upwards trend, the filters that select the best Cup-with-Handle breakouts are quite simple:

CET >= 6, UpDownRatio>=0.5, Industry_rank_CT<=25.

This set of filters beat the average return of all breakouts over the last 75 days by 51.5%. The filters would have given you 21 alerts with 7 breakouts confirmed. The average gain to the high since breakout would have been 23.6%, AND there would have been zero failures (a failure occurs when a breakout falls by more than 8% from its breakout price).

This result surprises us, because it is contrary to the trend we have seen over the 6 years we have operated the site in that industry rank (based on technical not fundamental criteria) has taken on an importance not previously seen. It reflects that in the uncertain market we have seen recently, investors have preferred 'quality' stocks over speculative issues. It is also notable that of the seven successful breakouts selected by these filters, only two were listed on the NASDAQ, which is consistent with the recent trend. the seven stocks are:

Investment Advisors Using our Service

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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.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 13639.5 1.6% 9.44% enter
NASDAQ 2626.71 2.07% 8.75% enter
S&P 500 1532.91 1.67% 8.08% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
2.07 %
NASDAQ Composite
0.32 %
NASDAQ Composite
1.86 %
Dow Jones
9.44 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Copper Industrial Equipment Wholesale 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 23 19.77 4.59% 3.44%
Last Week 37 18.38 1.84% -1.81%
13 Weeks 320 20.15 12.02%
Breakout Count for Week
Aerospace/Defense Products & Services
Internet Software & Services
Diversified Machinery
Computer Peripherals
Business Software & Services
Application Software
Drug Manufacturers - Major
Drug Manufacturers - Other
Drug Delivery
Oil & Gas Equipment & Services
Closed-End Fund - Foreign
Closed-End Fund - Equity
Farm Products
Industrial Electrical Equipment
General Contractors
CATV Systems
Air Delivery & Freight Services
Industrial Equipment Wholesale
Basic Materials Wholesale
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 CUP Peru Copper Inc 107
Top Technical JOSB Jos A Bank Clothiers 41
Top Fundamental CPX Complete Production Services Inc 31
Top Tech. & Fund. CPX Complete Production Services Inc 31
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 SAPE Sapient Corporation 86
Top Technical CALM Cal-Maine Foods Inc 69
Top Fundamental OMNI Omni Energy Services Cp 80
Top Tech. & Fund. OMNI Omni Energy Services Cp 80
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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