Weekly Newsletter 01/16/09
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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  

Our market model for small cap stocks turned down again this week and it looked as if we were heading for a test of last November's low. However, the market rallied on Thursday and Friday following release of the second $350 billion of TARP funds and further details on the $850 billion Obama stimulus package. Bailout funds for Bank of America, Citibank and Chrysler financials also helped to turn the tide.

Under 'normal' circumstances, we would consider Thursday's market action, when it recovered from a steep loss to close higher, day one of a new rally and would be looking for a follow-through day as early as next Tuesday to confirm the rally. As it happens, next Tuesday is also Inauguration Day, so we may well get an apparent follow-through day that will fuel the rally for a while longer. This would therefore seem to be a short term buying opportunity but we expect it will be another bear-market rally with another sell-off to follow, so take your profits early!

As you can see from our New Features and Top Tip below, the Head and Shoulders Bottom pattern has delivered some profitable breakouts recently and should not be overlooked. The beta version of this watchlist is open to all subscribers and guests for a little while longer.

 New Features this Week Additional Value that we added this week
Backtest Option Added to New Watchlist Format

We have continued to enhance our new watchlist format with the addition of a backtest feature. This is very similar to the backtest option that has been available for the cup-with-handle watchlist for several years.

To use the backtest feature on the H&S Bottom watchlist, choose the Mine for Candidates > Long Positions > H&S Bottom (beta) menu choice. You then access the filter setting by choosing the 'Filter Settings' tab.

Enter the filters that you want to test and then set the number of days over which to run a backtest and click the 'backtest' button.

Filter Settings

A window will then open showing the effect of your filters compared to no filters. To see the list of stocks that your filters selected, click the 'list' link in the results window.
Backtest Results
This Week's Top Tip Tips for getting the most out of our site
Use the New HSB Filters to Find Promising HSB Breakouts

As you can see from the results shown above, the Head and Shoulders Bottom list has produced some outstanding winners in the last three months. All the breakouts gained at least 5% (hence the zero fails number) and the average of all HSB breakouts was 27.5%. using a filter of a minimum RS rank of 60 improved the average return with three breakouts gaining over 70%.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 8281.22 -3.7% -5.64% Down
NASDAQ 1529.33 -2.69% -3.02% Down
S&P 500 850.12 -4.52% -5.88% Down
Russell 2000 466.45 -3.09% -6.61% Down
Wilshire 5000 8603.2 -4.26% -5.33% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-2.69 %
Dow Jones
-6.45 %
Dow Jones
-27.97 %
NASDAQ Composite
-3.02 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Long Distance Carriers Long Distance Carriers Long Distance Carriers Long Distance Carriers
 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. 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 3 4 12.37% 9.18%
Last Week 5 3.69 9.05% 4.14%
13 Weeks 51 4 11.01%
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 TSYS Telecommunications Systm 113
Top Technical HMSY Hms Holdings Corp 45
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 PSD Puget Sound Energy 51
Top Technical PSD Puget Sound Energy 51
Top Fundamental PSD Puget Sound Energy 51
Top Tech. & Fund. PSD Puget Sound Energy 51
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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