Weekly Newsletter 12/07/07
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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

We expected the markets to move lower this week after last Friday's action but the downward momentum was reversed on Wednesday as news of a pending 'solution' to the subprime mortgage problems surfaced. The markets reacted warmly to the proposal on Thursday but two days of strong gains were halted on Friday as job growth exceeded analysts' expectations and lowered the chances of a 0.5% rate cut at next Tuesday's FOMC meeting.

The expectation of a 0.5% rate cut has fueled the recent rally that began on November 27 and since then the market has been under accumulation with just three days of profit taking on lighter volume. Our equivolume charts (published daily) give a snapshot of market conditions and illustrate the strength of the recovery.


Despite this progress, our market signal for the S&P 500 remains at 'exit' and we examine the reasons for that in this weeks top tip. We have considered overriding the signal but resist doing so for two reasons:

  1. The recent growth is based on an expectation that the FOMC will cut rates by 0.5%. A cut of only 0.25% (or less!) would be a disappointment and result in a sell-off.
  2. The measures announced on Thursday to contain the subprime mortgage crisis will do little to assist stressed homeowners, mortgage backed securities investors or homebuilders. When this is realized, the markets will resume their decline.

Unfortunately, we also fear that any attempt to apply logic to the current situation is pointless as the markets are rigged . We have thought and said for weeks now that the administration is determined to keep the markets buoyant whatever the costs to inflation and dollar strength. We therefore think that the Fed will cut rates by at least 0.5% on Tuesday and that once it is realized that the current subprime plan will not adequately protect the financial sector from further steep losses another plan will be hatched and promoted.

The number of breakouts doubled this week to fifteen for an average gain by week's end of 2.96%, comfortanly beating the market averages. Of the fifteen, only two closed the week with a modest loss.


 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

Why the Market Model Still Says 'Exit'

Our market model signaled an exit for the S&P 500 (representing the broader market) on November 1. From its close of 1508.44 on that date it subsequently lost 6.8% but has now recovered those losses since a rally began on November 27. Despite those gains in just seven sessions, our market model still stays at 'exit'.

The model requires an accumulation day on which the market closes at least 1.5% above the low on the fourth or subsequent day of the rally AND that the close be above the 200 day moving average by 0.05%.

A look at our equivolume chart shows that the first accumulation day came on the fourth day of the rally but the close was below the 200 dma. The next accumulation day came on the seventh day of the rally. The index did close above the 200 dma, but by less than 0.05%, so the signal stayed at exit.


If the S&P 500 closes higher and we get an accumulation day following the FOMC meeting on Tuesday, then the signal will revert to 'enter'.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 13625.6 1.9% 9.33% enter
NASDAQ 2706.16 1.7% 12.04% enter
S&P 500 1504.66 1.59% 6.09% exit
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
1.9 %
Dow Jones
6.92 %
Dow Jones
4.91 %
NASDAQ Composite
12.04 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Major Integrated Oil & Gas Personal Computers Air Services, Other Air Services, 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 16 16.08 4.86% 2.81%
Last Week 8 15.85 7.68% 1.43%
13 Weeks 224 16.85 16.09%
Breakout Count for Week
Closed-End Fund - Equity
Industrial Electrical Equipment
Specialty Chemicals
Cleaning Products
Business Services
Drug Delivery
Health Care Plans
Property & Casualty Insurance
Steel & Iron
Catalog & Mail Order Houses
Auto Dealerships
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 DVD Dover Motorsports Inc 81
Top Technical ISIS Isis Pharmaceuticals Inc 37
Top Fundamental UIC United Industrial Corp 10
Top Tech. & Fund. UIC United Industrial Corp 10
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 SDTH 83
Top Technical PTT Vcg Holding Copr 72
Top Fundamental PTT Vcg Holding Copr 72
Top Tech. & Fund. PTT Vcg Holding Copr 72
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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