Weekly Newsletter 09/22/07
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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

Market conditions altered in favor of growth and technology stocks this week as interest rates fell and the cost of investment and money borrowed for acquisitions declined accordingly. This is good news for our subscribers as our methods favor growth and technology stocks.

The Federal Reserve sent a strong signal to the markets that they will "act as needed to foster price stability and sustainable economic growth" by cutting the prime interest rate by 0.5% when a cut of only 0.25% was expected. They reinforced that signal with another 0.5% cut in the discount rate. Market reaction was euphoric with the biggest 1 day gain in share prices in four years on Tuesday. The rally continued on Wednesday and profit taking did not occur until Thursday on much lighter volume. The markets closed the week with another gain on Friday for an overall gain of 2.81% by the DJI, 2.65% by the NASDAQ Composite and 2.80 % by the S&P 500.

The cut in interest rates also helps those with adjustable rate mortgages as they will now adjust upwards to a lesser extent and so foreclosures may be less severe than previously thought. On the negative side, the cut in interest rates risks stoking inflation as the dollar slides further making imports, especially oil, more expensive. Clearly, the FOMC weighed the risks of inflation against the risks of recession and chose inflation as the lesser of two evils.

Tuesday's gains on strong volume represented a breakout from a cup with handle pattern for the NASDAQ and another new pivot was set on Wednesday.

Friday's volume was above the recent average because Friday was a 'quadruple witching' day and also the day on which components of the S&P 500 were rebalanced.

The number of breakouts shot up to 29 this week with an average gain by the close of 4.4%, once again comfortably beating the major indexes. Those subscribers who jumped on ASTI when we issued an alert on Tuesday morning realized a 61% gain by Friday's close.

Each week we publish a list of what we call 'second chances' which are stocks that broke out during the week but are still within a buyable range. In response to an enquiry from a subscriber, we publish an analysis of the performance of these stocks in this week's 'Top Tip'.

Important note to Newsletter Subscribers who are not yet full subscribers: Our 14 day Trial is now completely free - no credit card needed to sign-up.

 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

Performance of 'Second Chance' stocks

Each week in our newsletter we publish a list of four 'second chance' stocks. These are stocks that broke out during the week from our cup-with-handle watchlist, but are still within 'buyable range' . To qualify the stocks must be between -8% and +5% of their breakout price. The four stocks we select are those that are within this price range and have the best expected gain, best CE score, best technical score and best fundamental score. Following a request from a subscriber, we have analysed the potential results that would be obtained if you bought each of these stocks at the open on the next session after newletter publication and held them for 12 months at the most.


The methodology we used is similar to that which is used for our 'Performance Report' of all breakout stocks. We assumed that each stock was bought at the open of the next session. We then tracked each day's high and low price for the next 12 months.

  • We determined which stocks met the newsletter 'second chance' criteria back to the beginning of 2004 and then used the open price at the next session as the 'buy' price.

  • If the stock rose to 5% or more above the buy price, the trade was considered a 'success' and the subsequent highest price achieved was used to calculate the profit on the trade

  • If the stock failed to reach 5% and fell back to 8% or more below the buy price, then the trade was considered a fail and the loss was calculated as 8%

  • if the stock remained within the -8% and +5% range, then it was considered to be still 'in-range' and the highest price achieved was used to calculate the profit.

  • An overall return was calculated including the 8% stop losses.

The results were as follows.

CategorySecond Chances Successes Fails In Range Avg. Success Profit Avg. In Range Profit Loss each Failed Trade Avg Profit All Trades
Exp Gain1901372627 48.7% 2.16% 8% 35.43%
CE190779419 50.38% 2.27% 8% 20.68%
CET1901076122 51.79% 2.39% 8% 29.47%
CEF190769717 49.55% 2.45% 8% 20.08%

As can be seen, the most successes and the least fails were for second chances that had the top expected gain value each week. This is as we would expect because our 'Expected Gain' calculation is designed to give the highest score to those stocks with characteristics that we have determined are most likely to give the best return within 12 months. These stocks also gave the best return overall. The second best scoring stocks were those that had the best CET score each week. This also doesn't surprise us because we have always thought that the technicals of a stock were a better indicator of its likely performance after breakout than the fundamentals.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 13820.2 2.81% 10.89% enter
NASDAQ 2671.22 2.65% 10.6% enter
S&P 500 1525.75 2.8% 7.58% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
2.81 %
Dow Jones
4.38 %
NASDAQ Composite
4.29 %
Dow Jones
10.89 %
 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 28 11.77 8.17% 4.37%
Last Week 9 10.15 13.34% 3.91%
13 Weeks 227 12.31 9.55%
Breakout Count for Week
Semiconductor Equipment & Materials
Semiconductor - Specialized
Telecom Services - Foreign
Savings & Loans
Information Technology
Business Software & Services
Electronic Equipment
Research Services
Business Services
Printed Circuit Boards
Semiconductor - Integrated Circuits
Oil & Gas Pipelines
Closed-End Fund - Foreign
Diversified Investments
Medical Appliances & Equipment
Insurance Brokers
Industrial Equipment & Components
Industrial Metals & Minerals
Electronics Stores
Telecom Services - Domestic
Communication Equipment
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 MEA Metalico Inc 103
Top Technical BWTR Basin Water Inc 54
Top Fundamental NBG National Bk Greece Ads 70
Top Tech. & Fund. KMGB Kmg Chemicals Inc. 60
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 GMST Gemstar-tv Guide Intl 91
Top Technical HNSN Hansen Medical Inc 33
Top Fundamental LIFC Lifecell Corporation 42
Top Tech. & Fund. LIFC Lifecell Corporation 42
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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