Weekly Newsletter 07/28/07
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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

It would be inappropriate to brag about our market signal going to exit last Friday just before the biggest weekly fall in the S&P 500 since September 2002 as it lost 4.9%. As we pointed out last week, the signal has been erratic this year, to say the least, but this time it may finally have got it right. Other indexes did not fall as sharply but the carnage was still pretty bad as the DJI lost 4.23% and the NASDAQ Composite dropped 4.66%. Volumes increased sharply adding strength to the sell-off. Volumes were 70% above average and Thursday and 40% above average on Friday. All three indexes are below their 50 day moving average and the S&P 500 looks as though it will test support at its 200 day moving average in the near future as it is only 10.8 points (0.7%) above that level now.

Each day we publish a snapshot of the market condition in the form of an equivolume chart. The equivolume chart is a succinct summary of price, volume, accumulation day, distribution day action and the relationship to short, medium and longer term moving averages. The equivolume chart of the SPX index as of Friday provides a clear picture of the amount of distribution that has taken place in the last six sessions and how close it is to the 200 dma support line.

If it fails to find support early next week, then we could see the S&P 500 fall to the level it reached following the China market crash in February, which would be a further 6% below the current level.

While February's correction was in reaction to an intervention by the Chinese government in their local market and was quickly erased, the causes of the current correction are much more systemic and likely to have a longer term influence on markets in the US. Credit is tightening and the cheap and easy money that has fueled the expansion so far is drying up. We can expect the "plunge protection team" to step in and halt the slide, although when remains in question. Inflation is coming under control, as Friday's core CPI number fell to 1.4% in the second quarter so the Fed may feel there is room to expend the money supply further thereby adding more liquidity, and easier credit, to the market.

While the economy exceeded expectations in the second quarter, the credit squeeze will make business investment more expensive and may prolong the housing recession. Prospects for economic growth in the second half of the year are falling and there is now a real possibility that the Fed will cut interest rates later this year.

In the meantime, I recommend being in cash.

 New Features this Week Additional Value that we added this week

Gold members were given access to our T/A charts.


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

Go to Cash

If you did not heed the advice of our market signal last week, then go to cash now. This may be a correction or it may be the begining of the long anticipated bear market. It is too soon to know but unless you are very risk tolerant, this is the time to be on sidelines.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 13265.5 -4.23% 6.44% enter
NASDAQ 2562.24 -4.66% 6.08% exit
S&P 500 1458.95 -4.9% 2.87% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-4.23 %
Dow Jones
-4.91 %
Dow Jones
-1.99 %
Dow Jones
6.44 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Major Integrated Oil & Gas Farm & Construction Machinery Industrial Equipment Wholesale 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 11 15.62 6.64% 0.03%
Last Week 23 17.69 4.34% -4.56%
13 Weeks 331 18.54 9.27%
Breakout Count for Week
Closed-End Fund - Equity
Agricultural Chemicals
Personal Services
Drug Manufacturers - Other
Oil & Gas Equipment & Services
Medical Appliances & Equipment
Processing Systems & Products
Major 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 CUP Peru Copper Inc 105
Top Technical AIXG Aixtron Aktiengesellschaft Ads 74
Top Fundamental LIFC Lifecell Corporation 39
Top Tech. & Fund. VSEA Varian Semiconductor 40
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 CSV Carriage Services Inc 83
Top Technical CSV Carriage Services Inc 83
Top Fundamental WFT Weatherford International Ltd 0
Top Tech. & Fund. WFT Weatherford International Ltd 0
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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