Weekly Newsletter 04/03/09
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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  

Unemployment increases, our industrial base is collapsing, the american auto industry is insolvent but the markets have just completed their fourth successive week of gains. And very strong gains they are too. The NASDAQ added almost 5% and the Russell 2000 over 6%. Hooray, we say and hurry to jump on for the ride. Our market trend models continue to point upwards for the NASDAQ and Russell 2000 while they perceive the trend remains downward for the DJI, S&P 500 and Wilshire 5000.

Another measure of an improving market is the number of stocks overcoming resistance levels and this week we saw the number of breakouts was 50% higher than the recent average. In a strong market we often see more than double that number, but the improvement indicates institutions are putting funds to work on the long side at last.

The NASADQ Composite is now positive for the year by almost 3%. The next test for the NASDAQ is just 23 points (1.4%) away so we will likely find out in the next few days if the rally can break through resistance. To some degree this will depend on the markets remaining positively disposed towards the financial sector, as they have been for two weeks now. As we shall see below, this looks likely to continue as earnings season approaches.


Just in time for earnings season, which starts next week with Alcoa being the first to report, the Financial Accounting Standards Board (FASB), under heavy pressure from Congress and the Banks, just changed the rules on how assets should be valued. The argument was that in a downward trending or frozen market, the mark-to-market rule was causing the 'toxic' assets to be grossly undervalued. This weakened the banks balance sheets, made the banks appear insolvent in some cases and limited the amount they could lend under the leverage rules. The rule change will now allow the banks to value these assets pretty much as they like, decreasing transparency and improving the banks' stated profitability (see How the FASB aids and abets obfuscation by wonky zombie banks). This is really just a shell game but with the connivance of Congress and the accounting authorities we are unlikely to find the pea any time soon.

The markets liked the rule change and the Financial sector has powered ahead. Profits (and dividends) drive prices so if the banks can show greater profits in the future then their share price must be undervalued now, hence the gain in price. As the cliche goes, 'a rising tide lifts all boats'.

An improvement in the banks' balance sheets, even if it's illusory, should have broader significance. Looser credit and lower interest rates will stimulate investment. Much of that investment will go to improve productivity through the purchase of newer technology so the outlook for the markets now is much more positive than it has seemed.

 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 8017.59 3.1% -8.65% Down
NASDAQ 1621.87 4.96% 2.84% Up
S&P 500 842.5 3.26% -6.73% Down
Russell 2000 456.13 6.32% -8.67% Up
Wilshire 5000 8599.33 3.91% -5.37% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
6.32 %
NASDAQ Composite
-0.63 %
NASDAQ Composite
-16.72 %
NASDAQ Composite
2.84 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Auto Parts Stores Auto Parts Stores Education & Training Services Cigarettes
 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 14 9.69 7.14% 4.52%
Last Week 11 9.62 10.61% 7.29%
13 Weeks 116 10.62 17.97%
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 COGO Comtech Group Inc 105
Top Technical VNUS Vnus Medical Tech 63
Top Fundamental HMSY Hms Holdings Corp 47
Top Tech. & Fund. VNUS Vnus Medical Tech 63
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 CRI Carter Holdings Inc 68
Top Technical CRI Carter Holdings Inc 68
Top Fundamental DMND Diamond Foods Inc 59
Top Tech. & Fund. PCS METROPCS COMM INC 68
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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