Weekly Newsletter 12/21/07
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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  

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NEW WATCHLIST COMING JANUARY 2: HIGH TIGHT FLAG
(see this week's Top Tip for a potential high growth stock)

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Market Summary

The NASDAQ Composite had its best week since the end of October with a gain of 2.13% and will likely run out to have the best performance of the Year. Currently the index has gained 11.46% compared to only 4.66% for the S&P 500 and 7.92% for the DJI. Bloomberg reports that analysts expect the Technology sector to average growth of 24% in 2008 and outperform all other sectors. If so, then we can expect more successful and more profitable breakouts from the NASDAQ next year.

The markets were enthused on Friday about robust consumer spending, but it is difficult to see how that can be sustained in the face of increasing credit costs and falling house prices. In the short term, the markets need to overcome some significant points of resistance. For instance, the 50 day moving average just crossed below the 200 day moving average for the S&P 500 and the index has yet to clear either of those levels. The NASDAQ is also knocking on its 50 day moving average and all three indexes face a resistance level set on December 11, as illustrated by the 6 month daily NASDAQ chart.

NASDAQ

We can expect light trading next week due to the Christmas holiday.

We would like to take this opportunity to thank all our subscribers and readers for their support this year and we wish you a very Merry Christmas and a Happy and Prosperous New Year.

 

 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

High Tight Flag Coming In January

In How to Make Money in Stocks, William J. O'Neil identified the High, Tight Flag pattern as rare but potentially highly profitable. In his Encyclopedia of Chart Patterns, (John Wiley and Sons, 2000) Thomas Bulkowski found they were not so rare but also very profitable, provided you waited for the breakout to enter the trade. We have now developed an algorithm to recognize the pattern and found that it was rare in comparison to the cup-with-handle (CwH) but still found quite often.

Our algorithm looks for stocks that meet the following criteria:

  • they must have formed a handle within the last 3 weeks of trading
  • the handle must be at least 5 days long (we may reduce this on further research)
  • the decline in the handle must be no more than 20%
  • there must have been a gain of at least 100% in the eight weeks prior to the handle formation
  • there is no minimum price or volume requirement (we may add a minimum volume in the future)

Some definitions of the high,tight flag (HTF) require that the stock be moving sideways before the rise and that volume be declining in the handle (like the CwH). We have not incorporated those criteria in the algorithm.

We will release a new watchlist and alert service on January 2 using the HTF pattern. We will publish some performance figures for the last year in next weeks newsletter. The charts shown below are samples of what we found while looking for HTF's over the last year. The chart format is generated automatically by the pattern recognition algorithm and these will be linked to the watchlist, as our other charts are.

An example of a very successful HTF that we found was Questcor Pharmaceuticals (QSC). As of November 9,2007 it had been in an HTF pattern for 7 days:

QSC_HTF

QSC broke out on November 12 and went on to gain 400% by yesterday's close.

QSC Breakout

As of last Thursday evening, Suntech Power Holdings (STP) was in an HTF and broke out on Friday. This is one to watch. We took a major position in it intraday on Friday.

Investment Advisors Using our Service

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 13450.7 0.83% 7.92% enter
NASDAQ 2691.99 2.13% 11.46% enter
S&P 500 1484.46 1.12% 4.66% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
2.13 %
NASDAQ Composite
-0.99 %
NASDAQ Composite
5.94 %
NASDAQ Composite
11.46 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Major Integrated Oil & Gas Major Integrated Oil & Gas Personal Computers Air Services, Other
 Most Improved Industry (by change in technical rank2)
Aluminum
+ 54
Aluminum
+ 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 27 15.38 3.8% 2.46%
Last Week 11 16.23 7.5% 3.18%
13 Weeks 224 17.31 12.9%
0.37%
Sector
Industry
Breakout Count for Week
AEROSPACE/DEFENSE
Aerospace/Defense Products & Services
2
DIVERSIFIED SERVICES
Business Services
2
ENERGY
Independent Oil & Gas
2
BANKING
Money Center Banks
1
CHEMICALS
Synthetics
1
CHEMICALS
Specialty Chemicals
1
COMPUTER SOFTWARE & SERVICES
Application Software
1
COMPUTER SOFTWARE & SERVICES
Business Software & Services
1
COMPUTER SOFTWARE & SERVICES
Multimedia & Graphics Software
1
DRUGS
Biotechnology
1
DRUGS
Drug Delivery
1
ELECTRONICS
Diversified Electronics
1
ELECTRONICS
Scientific & Technical Instruments
1
ENERGY
Major Integrated Oil & Gas
1
FINANCIAL SERVICES
Closed-End Fund - Equity
1
HEALTH SERVICES
Medical Instruments & Supplies
1
HEALTH SERVICES
Medical Appliances & Equipment
1
INSURANCE
Property & Casualty Insurance
1
MANUFACTURING
Metal Fabrication
1
METALS & MINING
Steel & Iron
1
TELECOMMUNICATIONS
Communication Equipment
1
TELECOMMUNICATIONS
Telecom Services - Domestic
1
UTILITIES
Electric Utilities
1
UTILITIES
Diversified Utilities
1
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
Category
Symbol
Company Name
Expected Gain1
Best Overall KAZ Bmb Munai Inc 86
Top Technical SHEN Shenandoah Telecomm 28
Top Fundamental BAP Credicorp Ltd 32
Top Tech. & Fund. BAP Credicorp Ltd 32
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
Category
Symbol
Company Name
Expected Gain1
Best Overall OFG Oriental Financial Group 57
Top Technical VSCN VISUAL SCIENCES INC 31
Top Fundamental TWGP Tower Grp Inc 30
Top Tech. & Fund. TWGP Tower Grp Inc 30
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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