Weekly Newsletter 09/08/07
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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

Weakness in employment sent a scare through the markets on Friday after there had been encouraging news earlier in the week, from the Beige Book and the ISM non-manufacturing index, that the economy was weathering the credit squeeze stemming from the sub-prime loan and housing debacles. While the consumer might have been willing to continue to spend on their credit cards while employment remained high, the prospect of job losses will certainly curtail spending if unemployment rises. Job losses have already occurred in the construction and mortgage businesses and after the market closed on Friday, Countrywide Mortgage announced it may cut 10,000-12,000 jobs in the next three months depending on the interest rate climate.

For the week, the DJI lost 1.83%, the NASDAQ Composite 1.18% and the S&P 500 1.39%. The rally that began on August 18 remains intact, but as the chart of the S&P 500 below shows, it is again in jeopardy as the SPX closed below its 200 day moving average for the fourth time since the beginning of August. Note also that the 50 dma represents a resistance line and that line has been falling since late July. A cut in interest rates is expected but the markets may be disappointed if the cut is only 0.25%. I would expect a brief rally if a 0.25% cut is announced in the next few days, but I would not expect the index to hold above the 50 dma unless there is a bigger cut. If there is no interest rate cut before the September 18 FOMC meeting, then we can expect the SPX to test resistance at 1432 and possibly 1410. I would expect that PPT intervention would prevent a test of the 1370 low of August 18, but if Alan Greenspan is right and this crisis looks a lot like 1987, then who knows where the floor might be.

While the Fed Futures market is betting that there is a 72% chance that there will be a 0.5% rate cut soon, we have seen the futures market be wrong about interest rates several times in the last 12 months, starting with the inversion of the yield curve in 2006 that was supposed to foretell a recession. On Thursday, four Federal Reserve Presidents said they hadn't yet seen evidence that a rate cut is necessary, but Friday's unemployment data may change their mind. Goldman Sachs increased its rate cut prediction to 0.5% from 0.25%.

With so much central bank intervention here and in Europe, and with the PPT likely to be very active, it is even more difficult than usual to predict the market direction. Neither technical nor fundamental indicators can be relied upon so gut feel is all we have to go on. On balance, I still believe the Administration and Federal Reserve will do whatever is necessary to avoid a market collapse and that the rally will continue but volatility will remain high.

 New Features this Week Additional Value that we added this week

No new features this week.

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

Comparison of Successful Alerts to Alerts Issued

I was asked by a subscriber to provide an analysis of the number of alerts that are 'successful' compared to the number of email alerts issued, so here it is.

The 'Buy Alerts' are issued intra-day and are issued when the stock has risen to its breakout (pivot) price and the projected volume for the day will be at least 1.5 times the average volume. An alert is considered a success if it closes at or over its pivot price and the actual volume met or exceeded 1.5 times the average.

The 'Short Alerts' are issued intra-day when the the support or target price is met and the volume projection will be at least 1.5 times average, except for Head & Shoulders Top alerts which are issued on price alone without consideration of volume (see this newsletter).

You will see that both types of alert can be issued for the Flat Base patterns. This is because a Flat Base occurs when a stock has paused in its rise or fall and can then either break above resistance or fall below support.

The success rate of the short alerts from the Flat Bottom patterns is something we were not aware of. We'll investigate this further next week.

  Watchlist Total*AlertsBOSuccess %
Buy Alerts  
  Double Bottom 1350447617336.3%
  Flat Base Top 24199116636131.0%
  Flat Base Bottom1010839213434.2%
  Head & Shoulders BottomNo data available
Short Alerts  
  ShortSale Watch20849347170220.2%
  Flat Base Top2419976476199.6%
  Flat Base Bottom1010837837699.5%
  Head & Shoulders Top663556532156.8%
* Total is the total number of times we listed a symbol on the watchlist. Because a symbol can appear for several days in succession before a breakout occurs, this is not a particularly meaningful number in itself.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 13113.4 -1.83% 5.22% enter
NASDAQ 2565.7 -1.18% 6.23% enter
S&P 500 1453.55 -1.39% 2.49% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-1.18 %
NASDAQ Composite
0.17 %
NASDAQ Composite
0.92 %
NASDAQ Composite
6.23 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Aerospace/Defense - Major Diversified Aerospace/Defense - Major Diversified Aerospace/Defense - Major Diversified Foreign Utilities
 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 7 11.23 3.7% -0.38%
Last Week 6 11.62 12.98% 6.25%
13 Weeks 231 12.15 8.86%
Breakout Count for Week
Aerospace/Defense Products & Services
Networking & Communication Devices
Printed Circuit Boards
Closed-End Fund - Debt
Marketing Services
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 ALLI Allion Healthcare Inc 104
Top Technical CFSG 80
Top Fundamental ACTU Actuate Corporation 91
Top Tech. & Fund. SILC Silicom Ltd 53
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 IDP Idera Pharmaceuticals Inc 74
Top Technical CHNR ChinaNatural Resources 73
Top Fundamental DCO Ducommun Inc 36
Top Tech. & Fund. DCO Ducommun Inc 36
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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