Weekly Newsletter 08/16/08
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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

NASDAQ in Confirmed Rally

The NASDAQ Composite index closed above its 200 day moving average on Thursday and we are now declaring the NASDAQ to be in a confirmed rally. The NASDAQ index has risen 13% from its July low and some would say that we should have called the confirmed rally sooner but our market model, backtested to the opening of the NASDAQ exchange in 1984, stubbornly refuses to believe a rally has legs unless the index is above the 200 dma level. Additionally, the model also requires that the day of confirmation should be an accumulation day (which Thursday was not) but we are overriding the model on this occasion as we think there are sufficient reasons to do so:
  • The weekly PSAR value (the * above or below the candlesticks on the chart below) has switched from a sell to a buy indicator. In our backtesting we have found the weekly PSAR to be a much more reliable indicator than the daily PSAR
  • This was the fifth consecutive positive week for the index. 
  • The index is trading between the 1 and 2 standard deviation Bollinger Bands indicating strength but that it is not yet over extended.
  • The average volume trend is up although we would have liked to see volume this week at or above the moving average.
  • Oil has fallen 23% from its July 11 high which will lift consumer confidence and a rising dollar will continue to lower inflationary pressure.

NASDAQ Composite

While the NASDAQ's upside move is welcome we continue to be more impressed with the Russell 2000 which continues to provide the majority of breakouts. The Russell 2000 index retreated from its resistance level this week, but the volume level was maintained above the 50 day moving average. We can expect the Russell to test resistance again next week.

In contrast, large cap stocks represented by the DJI and S&P 500 are looking sickly and should mostly be avoided. The DJI fell this week while the S&P 500 managed only a meagre gain (see Market Summary table below).

Despite the promising technical features of the charts, falling commodity prices and a rising dollar, the geopolitical threats to this picture will throw everything into reverse if the war in Georgia threatens oil and gas supplies to Europe.

 New Features this Week Additional Value that we added this week
We extended our performance reporting beyond the cup-with-handle pattern this wee to include the other long position watchlists.

Clicking Monitor > Performance on the navigation sidebar now provides options for Cup-with-Handle, Double Bottom, Head and Shoulders Bottom and Flat Base.
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
Signal
Dow 11659.9 -0.63% -12.1% enter
NASDAQ 2452.52 1.59% -7.53% enter
S&P 500 1298.19 0.15% -11.59% enter
Russell 2000 753.37 2.6% -1.65% N/A
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
2.6 %
Russell 2000
1.65 %
Russell 2000
7.39 %
Russell 2000
-1.65 %
 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 24 21.62 4.2% 1.25%
Last Week 56 22.77 8.6% 3.8%
13 Weeks 309 24.62 10.91%
-0.06%
Sector
Industry
Breakout Count for Week
DIVERSIFIED SERVICES
Staffing & Outsourcing Services
2
DIVERSIFIED SERVICES
Business Services
2
BANKING
Savings & Loans
1
CHEMICALS
Synthetics
1
COMPUTER HARDWARE
Data Storage Devices
1
COMPUTER SOFTWARE & SERVICES
Information Technology
1
CONSUMER DURABLES
Appliances
1
DIVERSIFIED SERVICES
Security & Protection Services
1
DIVERSIFIED SERVICES
Management Services
1
DRUGS
Biotechnology
1
ELECTRONICS
Scientific & Technical Instruments
1
ELECTRONICS
Semiconductor - Specialized
1
FINANCIAL SERVICES
Closed-End Fund - Equity
1
FINANCIAL SERVICES
Asset Management
1
HEALTH SERVICES
Medical Appliances & Equipment
1
INTERNET
Internet Software & Services
1
INTERNET
Internet Information Providers
1
MANUFACTURING
Industrial Equipment & Components
1
MATERIALS & CONSTRUCTION
Waste Management
1
MATERIALS & CONSTRUCTION
General Contractors
1
MATERIALS & CONSTRUCTION
Lumber, Wood Production
1
RETAIL
Grocery Stores
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 DAIO Data I/O Corp 116
Top Technical ENG Englobal Corp 72
Top Fundamental UNP Union Pacific Corp 46
Top Tech. & Fund. UNP Union Pacific Corp 46
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 ASGN On Assignment Inc 95
Top Technical IDSA Industrial Svcs Of Amer 73
Top Fundamental APEI American Public Education, Inc. 53
Top Tech. & Fund. APEI American Public Education, Inc. 53
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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