Weekly Newsletter 08/01/08
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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

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70% of Breakout Alerts Sucessful in July

Smaller cap stocks, as represented by the Russell 2000 index, continued to outperform the broader market with an overall gain of 0.82% for the week while the big cap DJI lost ground and the S&P 500 and NASDAQ Composite could manage only small gains. This was the fourth successive positive week for the index which had its lowest close on July 3 and has since recorded eight accumulation days compared to three distribution days. The Russell 2000 is easily the best performing index of the year with a loss of only 6.51%, about half of the NASDAQ's while the DJI and S&P 500 have slipped over 14%. The Russell 2000 is also the only index of the four we track to be above it's 50 day moving average.

During July we issued 111 breakout alerts and 110 of these were for Russell 2000 stocks. Of these a remarkably high 77  (70%) were successful. (A breakout alert is considered successful if the stock closes above the breakout price on at least 1.5 times average volume). As the weekly breakout statistics below show, average  weekly gains (from the breakout price to the Friday close) have averaged over 3.7%, far exceeding gains in the broader market.

In economic news, the Bureau of Economic Analysis reported that GDP grew by 1.9% in the second quarter in real terms. This was less than expected but also seems to be a number manipulated to reinforce the Administration's argument that we are not in a recession. To reach this number they took the dollar (nominal) growth of GDP, just 3%, and applied a price deflator of 1.1%. In other words, they implied that inflation is only running at 1.1% per annum. This defies credibility as in Q1 they used an also suspiciously low deflator of 2.6% . In the same report the BEA revised 4th quarter growth down to -0.2% and Q1 growth to 0.9%. We can expect further downward revisions in the future and will likely eventually learn that the recession started in Q4, 2007, although this revelation may be postponed until after the election :).

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

Focus on Small Cap Stocks

The above analysis shows that small cap stocks are showing a surprisingly successful breakout rate. The analysis also shows that although the number of breakouts is down, the success rate is way up and the short term returns are very good compared to the broader market.
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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 11326.3 -0.39% -14.61% enter
NASDAQ 2310.96 0.02% -12.87% exit
S&P 500 1260.31 0.2% -14.17% enter
Russell 2000 716.14 0.82% -6.51% N/A
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
0.82 %
Russell 2000
-1.32 %
Russell 2000
-1.97 %
Russell 2000
-6.51 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Long Distance Carriers Long Distance Carriers REIT - Healthcare Facilities REIT - Healthcare Facilities
 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 36 21.38 21.28% 3.77%
Last Week 25 21.69 7.9% 3.74%
13 Weeks 294 24.62 14.7%
-2.03%
Sector
Industry
Breakout Count for Week
COMPUTER SOFTWARE & SERVICES
Business Software & Services
2
DRUGS
Biotechnology
2
FINANCIAL SERVICES
Closed-End Fund - Equity
2
HEALTH SERVICES
Medical Appliances & Equipment
2
HEALTH SERVICES
Home Health Care
2
TRANSPORTATION
Railroads
2
AUTOMOTIVE
Trucks & Other Vehicles
1
BANKING
Regional - Mid-Atlantic Banks
1
BANKING
Regional - Southeast Banks
1
BANKING
Savings & Loans
1
COMPUTER SOFTWARE & SERVICES
Application Software
1
COMPUTER SOFTWARE & SERVICES
Information Technology
1
DIVERSIFIED SERVICES
Research Services
1
DIVERSIFIED SERVICES
Management Services
1
DIVERSIFIED SERVICES
Technical Services
1
DRUGS
Drug Delivery
1
DRUGS
Drug Manufacturers - Other
1
ELECTRONICS
Scientific & Technical Instruments
1
FINANCIAL SERVICES
Credit Services
1
FINANCIAL SERVICES
Diversified Investments
1
FOOD & BEVERAGE
Processed & Packaged Goods
1
LEISURE
Restaurants
1
MANUFACTURING
Industrial Equipment & Components
1
MATERIALS & CONSTRUCTION
Heavy Construction
1
MEDIA
Advertising Agencies
1
METALS & MINING
Industrial Metals & Minerals
1
REAL ESTATE
REIT - Diversified
1
TRANSPORTATION
Trucking
1
WHOLESALE
Electronics Wholesale
1
WHOLESALE
Building Materials Wholesale
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 CYTX Cytori Therapeutics Inc 106
Top Technical OME Omega Protein Corp 64
Top Fundamental SOHU Sohu.Com Inc 51
Top Tech. & Fund. SOHU Sohu.Com Inc 51
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 VISN VISIONCHINA MEDIA, I 81
Top Technical OSIP Osi Pharmaceuticals Inc 51
Top Fundamental CSX Csx Corp 49
Top Tech. & Fund. CSX Csx Corp 49
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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