Weekly Newsletter 06/05/09
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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  

Last week we identified a resistance level for the NASDAQ Composite at 1789 which it comfortably passed as soon as Monday to close the week at 1792.8. The weekly chart shows there has been only one negative week for the index since March 9. Note that the On Balance Volume (overlaid on the weekly chart below) has been steadily climbing since March 9 also. This is an indication that as confidence grows, more and more money is coming from the sidelines to participate in the market rally. Another encouraging sign is that the 50 dma has now risen above the 200 dma.

NASDAQ Composite

This was an exceptionally good week for breakouts with 22 breakouts making an average of over 8% by Friday's close. The standout performer was Kenexa Corp. (KNXA) which soared over 34% intraday after breaking out from a High Tight Flag pattern and closed 27.5% above its breakout price.

 New Features this Week Additional Value that we added this week

We are really excited about the Zacks Strong Buy watchlist and its money-making potential and added several new features this week:

  1. There is now a real-time alert monitor so you can catch these stocks as they break out, even if you don't have access to the email alerts.
  2. There is also a 'Buy and Sell Alert History' which shows alert status as of the end of each session. This display also shows the breakout status of any buy alerts issued. The display also shows when a stock on which we issued an alert lost its Strong Buy ranking. This is checked for each stock each day.
  3. In addition to breakout alerts, we are also sending sell alerts when either the breakout attempt is not confirmed, or the stock loses its Strong Buy rating.

You must be a Zacks subscriber to access the Zacks Strong Buy watchlist and associated reports and alerts.. You can get a 30-day free trial from Zacks Investment Research by clicking the Zacks logo:


We also improved the Strong Buy Strategy Simulator in two ways this week:

  1. We updated the backtest database to include data through to June 1 of this year
  2. We added an additional option to sell at next open if a breakout alert is unconfirmed (see below for a discussion of this).
This Week's Top Tip Tips for getting the most out of our site

Revised Zacks Strong Buy Strategy Yields 117% Compound Annual Return

Following an enquiry from a subscriber we analyzed the impact of selling an unconfirmed breakout attempt at the open of the next session as an alternative to selling when it lost its Strong Buy rating or hit a pre-set stop loss percent. We found this made a dramatic improvement to the already very impressive results.

For example, using a 5 position limit and a 5% stop loss for cup-with-handle breakouts, the return over the length of our backtest improved from a compound annual return of 83.6% to 97.8%. At the same time the maximum drawdown over the length of the backtest dropped from 13.6% to 7.3%. The results summary for the two options is shown in the table below..

Impressive though the new result is, we also looked at the optimum position size and stop loss using the new sell at open if breakout unconfirmed option. We found four (4) positions and a stop-loss of 4% gave the best reward to risk ratio over the period of the backtest. These options gave a 117.1% compound annual return from January 2004 to June 1, 2009. We have updated our white paper describing the revised strategy and the results.

This table shows results for the buy on alert strategy and compares the effect of selling an unconfirmed breakout at the next open versus holding the position until either the stock loses its Zacks Strong Buy ranking or falls to its stop loss price. The results are for the period 1/1/2004 to 6/1/2009.
Strategy Results Comparing Unconfirmed Breakout Options
Keep Unconfirmed Breakouts
Sell Unconfirmed Breakouts at Open
S&P 500
Initial Portfolio Value
Final Portfolio Value
Profit %
2575.39 %
3897.24 %
-15.98 %
Avg. premium paid over breakout price
0.67 %
0.68 %
Maximum Portfolio Value
Maximum Gain %
2642.17 %
3943.83 %
39.47 %
Compound Annual Return %
83.62 %
97.78 %
-3.17 %
Minimum Portfolio Value
Maximum Loss %
0 %
0 %
-39.72 %
Maximum Drawdown
Maximum Drawdown %
13.58 %
7.34 %
56.78 %
Risk Adjusted Return*
Maximum Positions Filled
No. of wins
Avg. win %
13.96 %
8.17 %
No. of losses
.. of which stopped out count
Avg. Loss %
-4.26 %
-3.83 %
Win/Loss Ratio
Avg. Return per Trade
6.56 %
4.62 %
Avg. Days Held
Max. Consecutive Wins
Max. Consecutive Losses
* Ratio of the total return to maximum drawdown.


 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 8763.13 3.09% -0.15% Down
NASDAQ 1849.42 4.23% 17.27% Up
S&P 500 940.09 2.28% 4.08% Down
Russell 2000 530.36 5.74% 6.19% Up
Wilshire 5000 9654.77 2.62% 6.25% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
5.74 %
Russell 2000
42.94 %
NASDAQ Composite
22.53 %
NASDAQ Composite
17.27 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Auto Parts Stores Auto Parts Stores Auto Parts Stores Auto Parts Stores
 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 22 16.38 11.23% 8.23%
Last Week 25 14.54 12.32% 5.78%
13 Weeks 209 17.08 23.21%
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 HTGC Hercules Technology Growth Capital Inc 119
Top Fundamental ATW Atwood Oceanics Inc 67
Top Tech. & Fund. EBIX Ebix Inc 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
Company Name
Expected Gain1
Best Overall MFLX Multi-fineline Electronix Inc 80
Top Technical UNFI United Natural Foods Inc 55
Top Fundamental UNFI United Natural Foods Inc 55
Top Tech. & Fund. UNFI United Natural Foods Inc 55
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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