Weekly Newsletter 02/27/09
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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  

Some subscribers reported not receiving the weekly newsletter so we are resending it. We apologize if this is a duplicate in your case. - Mike Gibbons.

There were a flurry of breakouts on Friday from ETF's that short financial and industrial stocks. This followed the probable dilution of Citigroup shares and a much worse than expected fall in fourth quarter GDP. We say 'probable dilution' because the plan requires that other holders of preferred shares also agree to conversion to common stock, which seems a foregone conclusion. This improves the balance sheet of Citigroup because it removes the obligation to pay dividends to preferred shareholders, but is likely just another finger in the leaky dyke.

The markets are telling us that they expect the economic situation to worsen and that other financial institutions such as B of A will also suffer shareholder dilution. Despite reassurance from the Administration that nationalization of the banks is not their goal, it seems that the major banks are undergoing creeping nationalization and that as each successive injection of capital fails to resuscitate the system then the 'creep' will approach 100%. Until the toxic assets are removed from the bank's balance sheets their health will remain in question and it would be better to bite the nationalization bullet now rather than later so the bad assets can be forcibly removed from the books and the cleaned-up bank sold back to private investors. For a well reasoned analysis we recommend The Case For and Against Bank Nationalization.

Because we think the market has not yet bottomed we draw attention again to our two short position watchlists. These are based on the Head and Shoulders Top pattern and stocks breaking down after failing support at the 50 day moving average level. Over the last 90 days, stocks that broke down from these patterns have averaged a profit of 35.7% from their breakdown price to their following intra-day low. The individual stocks are shown in this weeks tip below.

 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

We offer two watchlists of stocks that are possible short sale candidates.

The '50 DMA Breakdown' list is compiled by selecting stocks that meet a specific set of criteria based on the guidelines offered in How to Make Money Selling Stocks Short by William O'Neil with Gil Morales, with additional requirements and constraints of our own. (see the methodology description). Over the last 90 days, breakdowns from this pattern have delivered an average return of 38.5% from the 50 day moving average to their subsequent intra-day low.

The Head and Shoulders Top pattern is also a reliable guide to potential short sales. The methodology is described here. Over the last 90 days, breakdowns from this pattern have delivered an average return of 32.3% from breakdown to their subsequent intra-day low.

When shorting a stock on one of these lists, consider the following guidelines:

1. Short selling is risky because your potential loss is unlimited. When going long, the maximum amount you can lose is your initial investment, when shorting there is no limit to how high the stock can go from your entry level, so cover quickly when the stock moves against you.
2. Review the watchlists prior to the market open to select stocks you would consider shorting if an alert is issued.
3. Set a target cover price before you go short, using either a fixed percentage or an expected support level, and take profits at that level.
4. If you go short on an alert and the stock recovers above the support level by the close, consider covering your position immediately.
5. If you go short on an alert and the stock closes below the support price but volume doesn't meet the 1.5 times adv requirement, don't cover but wait for the action on the following day.
6. After a confirmed breakdown a stock may recover to test the 50 dma resistance level - allow 2% overshoot before covering as the stock may breakdown again after testing resistance. If it holds at more than 2% above resistance, consider covering.
7. Cover when a support level is tested and found to hold.
8. Don't bet against the market.

Here is a list of stocks that broke down in the last 90 days.

B'down Date Symbol Base B'down Price Gain % at Intraday Low
01/07/09 FULT HST 10.02 84.55
01/02/09 PFS HST 15.16 82.44
12/01/08 TCB HST 16.62 74.44
01/12/09 CBST HST 23.13 63.99
12/04/08 SKYW HST 15.15 60.11
01/12/09 PNM HST 10.72 58.11
02/23/09 QCOR HST 6.96 533
01/22/09 QCOR HST 6.96 533
01/21/09 EZPW HST 13.86 39.77
01/08/09 EZPW HST 13.86 39.77
02/13/09 EZPW HST 13.86 39.77
01/30/09 EZPW HST 13.86 39.77
01/14/09 EZPW HST 13.86 39.77
02/10/09 EZPW HST 13.86 39.77
01/05/09 NTES HST 22.43 355
12/01/08 NAL HST 13.52 32.77
01/05/09 COGT HST 12.4 30.55
01/14/09 COGT HST 12.4 30.55
01/22/09 COGT HST 12.4 30.55
01/20/09 COGT HST 12.4 30.55
02/17/09 SMG HST 33.79 27.99
01/14/09 FHN HST 8.84 27.22
12/04/08 PETS HST 16.04 22.11
02/04/09 CRI HST 16.47 18.88
01/07/09 HRB HST 22.61 14.11
01/02/09 HRB HST 22.61 14.11
02/23/09 ESI HST 116.98 133
01/09/09 TIVO HST 7.35 12.44
02/17/09 FHN HST 8.84 12.22
01/26/09 FHN HST 8.84 12.22
01/22/09 FHN HST 8.84 12.22
02/19/09 HANS HST 34.59 11.66
02/06/09 FAZ HST 42.15 11.44
01/20/09 TIVO HST 7.35 7.88
01/29/09 TIVO HST 7.35 7.55
02/17/09 SVR HST 14.94 77
02/20/09 CREE HST 19.6 6.11
No. of breakdowns 37 Avg. % Profit 32.3%
02/04/09 MWA SS 6.57 236.99
01/27/09 VPHM SS 12.22 213.33
02/10/09 X SS 33.67 76.99
01/12/09 SUSQ SS 13.7 73.99
01/12/09 CBST SS 24.33 72.44
01/12/09 PII SS 27.93 633
12/11/08 MAA SS 36.21 51.88
01/15/09 TRMB SS 19.66 51.55
12/22/08 WOR SS 11.85 49.66
01/27/09 CNQR SS 28.23 422
01/07/09 ANSS SS 28.08 41.33
01/08/09 ANSS SS 27.54 38.66
02/11/09 HUBG SS 23.52 38.33
02/11/09 XEC SS 25.6 37.33
01/22/09 ARD SS 25.22 35.77
01/20/09 HCP SS 23.02 35.55
02/12/09 EDU SS 51.5 35.44
02/12/09 EAC SS 25.63 34.33
01/15/09 ARD SS 24.92 34.11
12/18/08 ATHR SS 15.39 33.99
02/10/09 BOH SS 39.4 31.33
02/17/09 JAH SS 11.55 28.55
02/19/09 RJF SS 17.83 288
01/20/09 MVL SS 29.05 23.33
02/10/09 PXD SS 16.81 22.99
01/06/09 CELG SS 54.36 22.66
12/09/08 ODFL SS 24.7 22.44
02/10/09 WERN SS 16.13 21.99
02/18/09 BTU SS 24.66 20.33
02/11/09 PXD SS 16.45 20.22
02/06/09 CRM SS 30.18 19.88
01/06/09 FFIV SS 22.79 19.11
01/23/09 DRIV SS 22.52 18.11
02/19/09 DV SS 56.33 155
02/12/09 DV SS 56.31 14.99
01/20/09 AMTD SS 12.57 14.44
02/26/09 GENZ SS 68.32 12.99
01/13/09 APH SS 23.54 9.22
02/27/09 HK SS 18.01 7.88
02/27/09 ALXN SS 36.5 7.66
02/23/09 HP SS 22.71 5.99
02/17/09 HP SS 22.63 5.55
01/06/09 FDO SS 25.29 5.33
02/17/09 AAP SS 32.35 1.77
No of breakdowns 44 Avg % gain 38.5%
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 7062.93 -4.11% -19.52% Down
NASDAQ 1377.84 -4.4% -12.63% Down
S&P 500 735.09 -4.54% -18.62% Down
Russell 2000 389.02 -5.34% -22.11% Down
Wilshire 5000 7473.88 -4.21% -17.75% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-4.11 %
NASDAQ Composite
-20 %
Dow Jones
-38.82 %
NASDAQ Composite
-12.63 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Education & Training Services Education & Training Services Diversified Utilities 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 10 9.08 5.67% -0.09%
Last Week 12 9.54 4.69% -4.83%
13 Weeks 116 10.15 14.91%
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
Best Overall SWIM thinkorswim Group Inc. 99
Top Fundamental HMSY Hms Holdings Corp 39
Top Tech. & Fund. HMSY Hms Holdings Corp 39
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 MVSN Macrovision Corp 67
Top Technical DXD ProShares UltraShort Dow30 ETF 39
Top Fundamental SDS ProShares UltraShort S&P500 ETF 45
Top Tech. & Fund. SDS ProShares UltraShort S&P500 ETF 45
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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