Weekly Newsletter 06/14/08
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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  
Weekly Commentary

Market Summary

Breakouts Outperform while Markets Under Distribution on Above Average Volume

Friday's rally after a week which saw distribution on the S&P 500 (see weekly SPX chart below) got us wondering if we hadn't seen this trading pattern before. It is rumored that the PTT ("Plunge Protection Team") likes to rally the markets on Friday after a losing week so as to leave investors optimistic over the weekend to avoid a 'black monday'. To put this theory to the test we looked at the number of times the markets had rallied on Friday after losing from Monday through Thursday since the markets peaked last October. To our surprise, we found no evidence for the theory. Since the beginning of October, the S&P 500 and NASDAQ Composite  were both losing ground Monday to Thursday (or Wednesday if a short week)  in 17 out of the 30 weeks. However, they rallied on the last day of the week just 4 times in the case of the S&P 500 and 6 times in the case of NASDAQ Composite. Although this doesn't prove that there is no market intervention, it does show that our perceptions have been wrong.

Analysts explained Friday's rally on a rise in retail sales during May and a core inflation rate that was not worse than expected. The supposedly modest increase in the core rate of only 0.2% was thought to minimize the chances that the Fed will raise interest rates later this year. However, there is so much bad news about the economy (gas prices, airline fares, rising food costs, rising unemployment, still falling home prices) that it is unlikely that the Fed will raise rates in the near future anyway despite this week's Bernanke bluff to talk up the dollar. As for the rise in retail sales, that can wholly be explained by inflation enabled by the economic stimulus package which will soon run its course.

The S&P 500 chart shows two successive distribution weeks of well above average market volume. The 'gravestone doji' for the week shows bears and bulls are in near equilibrium and is usually interpreted as signifying uncertainty about the future trend. Our view remains that the trend is still down and that the bottom is not yet in sight. This is painful for us to admit as the success of our methodologies, for the most part, depends on a rising market. Nevertheless, breakouts selected by our algorithms significantly outperformed the markets this week with an average gain to the weeks close of over 2.7%.

S&P 500
As we conclude this writing, we see that the New York Times is reporting that the Saudi's are going to increase oil production by 0.5 Million barrels/day or 5% of current production. This will likely affect markets on Monday to cause oil prices drop and the dollar to rise.
 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

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Dow 12307.3 0.8% -7.22% enter
NASDAQ 2454.5 -0.81% -7.46% enter
S&P 500 1360.03 -0.05% -7.38% enter
Russell 2000 733.61 -0.91% -4.23% N/A
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
0.8 %
NASDAQ Composite
10.67 %
Russell 2000
-2.7 %
Russell 2000
-4.23 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Independent Oil & Gas Independent Oil & Gas Agricultural Chemicals Agricultural Chemicals
 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 21.77 6.65% 2.74%
Last Week 26 22.23 6.31% -0.58%
13 Weeks 289 23.08 18.67%
Breakout Count for Week
Specialty Chemicals
Computer Based Systems
Information Technology
Oil & Gas Equipment & Services
Oil & Gas Drilling & Exploration
Investment Brokerage - Regional
Specialized Health Services
Farm & Construction Machinery
Processing Systems & Products
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 NLS Nautilus Group Inc (the) 119
Top Fundamental GXDX GENOPTIX, INC. 52
Top Tech. & Fund. NR Newpark Resources Inc 85
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 SEAC Seachange Internat Inc 97
Top Technical DMRC Digimarc Corporation 75
Top Fundamental SEAC Seachange Internat Inc 97
Top Tech. & Fund. SEAC Seachange Internat Inc 97
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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