Weekly Newsletter 02/14/09
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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  
The markets gave their opinion on the revised TARP plan and economic stimulus package this week with losses of over 5% for the DJI and 4.8% for the S&P 500. The NASDAQ Composite was the least damaged of the major indexes with a loss of 3.6%. If we are to avoid a prolonged and deep recession it is important that the stimulus act quickly and that the banks feel secure so that they can lend again. At this juncture, neither seems likely in the near future.

The revised TARP proposal was little more than a conceptual plan at this time with many details still to be filled-in, not the least of which was how to value the 'toxic' assets. There is no way to do this that will not either hurt taxpayers, on the one hand, or the private investors that are expected to buy the assets on the other. Since the private investors are not going to buy the assets unless they perceive a positive reward/risk it seems inevitable that any plan to take toxic assets off the bank's books will leave taxpayers at risk. The Administration is at odds with itself as the political advisors weigh in on the side of the taxpayers and the Treasury, led by Geithner, presumably has the bank's interest at heart (he is on record as saying that we have a private banking system and it should remain so). Some elements of the plan seem superficially sound, such as auditing the banks and "triaging" the sick from the mortally wounded with the FDIC making small depositors whole. What will happen if Citi, B of A, J. P. Morgan Chase and possibly Wells Fargo are among the mortally wounded is something the Adminsitration still has to face up to. Nouriel Roubini has argued for some time that the big banks are effectively insolvent and in the Washinton Post yesterday argues for 'receivership' (a more PC word than 'Nationalization'). Obama has already laughed at that proposal, saying "Sweden looks like a good model. Here's the problem; Sweden had like five banks. [LAUGHS] We've got thousands of banks", so that option is not going to happen anytime soon.

The stimulus plan suffers from being too little and will arrive too late. Whether you think that there should have been more tax cuts or more spending is somewhat beside the point if the size of the package is too small. Many economists see the shortfall in demand in the economy in the next two years to be in excess of $2 trillion and argue therefore that $787 billion is insufficient.

So with the financial system still on life-support and a knee-capped stimulus package, it doesn't appear that the markets will arrest their decline any time soon.

Consistent with this view, the NASDAQ Composite failed to breakout to the upside of the descending triangle and the bearish outcome associated with this pattern remains likely. But with new initiatives rumored daily, nothing is certain.

Nasdaq Composite

 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
No tip this week.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 7850.41 -5.2% -10.55% Down
NASDAQ 1534.36 -3.6% -2.71% Down
S&P 500 826.84 -4.81% -8.46% Down
Russell 2000 448.36 -4.75% -10.23% Down
Wilshire 5000 8385.74 -4.55% -7.72% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-3.6 %
NASDAQ Composite
-7.61 %
Dow Jones
-32.67 %
NASDAQ Composite
-2.71 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Education & Training Services Diversified Utilities 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 6 9.08 4.05% 1.55%
Last Week 15 9.62 10.49% 4.57%
13 Weeks 106 10.15 15.91%
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
Top Technical SXL Sunoco Logistics Ptnrs Lp 49
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 PEGA Pegasystems Inc 71
Top Technical GLD streetTRACKS Gold Shares ETF 29
Top Fundamental ICUI Icu Medical Inc 58
Top Tech. & Fund. ICUI Icu Medical Inc 58
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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