Weekly Newsletter 07/19/08
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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  

Market Summary

Market intervention by the Treasury and Federal Reserve over last weekend again confounded short sellers and the markets trended upwards on strong volume. The S&P 500 and NASDAQ Composite reversed a 5 week losing streak. This looks very much like the reversal that occured in March following the Bear Sterns rescue and will likely result in a similar short term bounce. In March we were told Bear Sterns was too big to fail and now, more convincingly, the same is said of Fannie Mae and Freddie Mac. The Congress is likely to pass legislation bailing out the share and bond holders and the markets have heaved a sigh of relief. In our opinion it is another bear market rally that will ultimately fail because the underlying fundamentals have not changed.

Financial institutions have so far acknowledged only about a quarter of the losses they are ultimately expected to bear. The failure of IndyMac Bank is likely to be followed by further bank failures as home prices continue to fall and bad mortgage loans continue to accumulate. The housing market will continue to fall into next year, and possibly beyond, leaving many homeowners and ex-homeowners feeling impoverished. Energy prices will remain high although they will fall slightly as demand falls and if middle east tensions ease, but higher energy costs will hurt Detroit car makers further and sap consumer discretionary spending.

While the overall market outlook is gloomy, there will be opportunities to make profits in the current rally and some stock breakouts will continue to be highly rewarding. See this weeks Top Tip for an example of how to select stocks that have performed well since the downturn began last October.


 New Features this Week Additional Value that we added this week
Added Draw Down % to Watchlist Backtest Function

When you run a backtest on your filters  in the cup-with-handle watchlist, the results table shows the number of stocks selected by your filters with a 'list' link beside it. Clicking that link brings up a list of the stocks found by your filters. We hav enow added a 'drawdown' column to that list showing the maximum drawdown before the eventual maximum intraday gain was achieved. An example is shown below.

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

Using Filters to Find Top Quality Breakouts in a Bear Market

One of our subscribers has discovered a simple filter for our Cup-with-Handle watchlist that has produced excellent returns recently. The filter is to select breakouts that have a very high Relative Strength Rank (>= 95) and moderately to good fundamental strength (CEF >= 7).

Applying this filter to all breakouts since last October, when the bear market began, gives 31 breakouts with an average return after breakout to an intraday high of 28.4%. This is almost double the average return of 14.9%. The best part about this filter is that there was only one 'failure' out of the 31 stocks. (A stock is classed as a failure if it fails to rise by 5% above its breakoutprice and then falls to a stop-loss level of -8%). Once the stock has gained at least 5%, then we calculated the maximum drawdown necessary to allow the stock to reach its maximum. 

Symbol
Breakout Date
Max Gain %
Draw Down %
before Max.
URRE
10/12/07
48.56
6.6
URRE
10/26/07
33.96
6.6
URRE
11/06/07
19.25
22.33
SDTH
12/06/07
84.48
10.02
PTT
12/06/07
22.52
10.83
WBD
01/03/08
5.62
2.58
HOGS
01/15/08
8.18
19.72
VMSI
02/04/08
0.29
0.16
HQS
02/07/08
28.16
3.61
CLF
02/08/08
129.19
17.16
FLS
02/28/08
6.36
13.74
FEED
03/12/08
75.54
22.44
LNN
03/19/08
61.22
4.18
FEED
04/11/08
54.98
22.44
ASIA
04/14/08
16.46
10.87
SOHU
04/16/08
73.92
10.11
GTI
04/23/08
42.68
3.91
SOHU
04/25/08
54.82
10.11
ARD
04/28/08
3.89
10.8
GTI
05/01/08
35.17
3
CNQR
05/01/08
11.41
5.34
CEDC
05/01/08
21.65
6.23
GSI
05/07/08
9.06
0
SNHY
05/12/08
9.99
5.87
RIMM
05/12/08
9.04
8.72
GNK
05/12/08
5.51
2.22
EBS
05/28/08
26.27
11.79
NR
06/03/08
8.24
4.14
DYII
06/10/08
16.24
3.39
EBS
07/08/08
13.91
5.89
CAP
07/10/08
11.03
0

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 11496.6 3.53% -13.33% enter
NASDAQ 2282.78 1.93% -13.93% exit
S&P 500 1260.68 1.67% -14.14% enter
Russell 2000 693.08 3.39% -9.52% N/A
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
3.53 %
Russell 2000
-3.88 %
Russell 2000
2.96 %
Russell 2000
-9.52 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Long Distance Carriers Independent Oil & Gas Independent Oil & Gas Agricultural Chemicals
 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 13 22 5.85% 0.47%
Last Week 11 23.31 7.24% 1.29%
13 Weeks 302 24.38 13.06%
-2.3%
Sector
Industry
Breakout Count for Week
FINANCIAL SERVICES
Closed-End Fund - Equity
3
DRUGS
Biotechnology
2
DIVERSIFIED SERVICES
Rental & Leasing Services
1
DIVERSIFIED SERVICES
Research Services
1
DRUGS
Drug Manufacturers - Major
1
HEALTH SERVICES
Medical Appliances & Equipment
1
HEALTH SERVICES
Medical Instruments & Supplies
1
HEALTH SERVICES
Home Health Care
1
RETAIL
Home Furnishing Stores
1
TRANSPORTATION
Trucking
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 DDIC Ddi Corp 119
Top Technical HI HILLENBRAND, INC. 53
Top Fundamental NOA NORTH AMERICAN ENERG 57
Top Tech. & Fund. MASI MASIMO CORPORATION 43
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 AMRI Albany Molecular Rsrch 73
Top Technical RCII Rent A Center Inc 59
Top Fundamental LHCG LHC Group 54
Top Tech. & Fund. LHCG LHC Group 54
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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