Weekly Newsletter 10/02/09
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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  

Rising unemployment and falling industrial production bode ill for the economic recovery and with it corporate earnings. Investors have been nervous for some weeks that the market's gains have outstripped earnings potential and in the last two weeks that nervousness graduated to fear. That fear has started to have a tangible impact on stock prices as we shall see.

As usual we consider the NASDAQ Composite because it is from that exchange that the most profitable breakouts arise. The one year weekly chart shows that we just endured the first back-to-back weekly loss since the recovery began on March 9. This was also the biggest weekly loss both in points and percentage since March 9. The index is testing support at the 10 week (50 day) moving average level which it hasn't done since the first week of July. At that time, the index recovered strongly after a double test of support, in part due to the 'cash-for-clunkers' program which came on-stream in July. With no such stimulus to lift earnings prospects now, manufacturing still contracting and unemployment rising, we could well see the 50 dma support level breached decisively in the next few days.

NASDAQ Composite Weekly

If the 50 dma support level is breached then the next significant support level is at 1880, an 11.6% drop from Friday's close. A breach of support would be a signal to consider shorting some of the stocks on our short watchlists. On Friday we issued ten confirmed breakdown alerts, a sure signal that there are now shorting opportunities with more to come.


 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

Not really a top tip (yet) but interesting nonetheless.

A subscriber has hypothesized that breakouts are more successful when the volume on the day after breakout exceeds the breakout day volume. He also hypothesized that the failure rate is lower in that case.

A preliminary look at our data suggests that the gain after breakout is indeed superior in this case but that the failure rate is not improved. This deserves more study over a longer time period (we can go back to April, 2003) to confirm the result. We also need to determine if the improvement in return offsets the (possibly) higher price that would be paid by waiting for the second day's volume. We will study this next week.

Do you have a system that you believe works but needs more rigorous testing and analysis? If so let us know and we will backtest it against our historical data and publish the results.


 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 9487.67 -1.84% 8.1% Down
NASDAQ 2048.11 -2.05% 29.87% Up
S&P 500 1025.21 -1.84% 13.5% Up
Russell 2000 580.2 -3.13% 16.17% Up
Wilshire 5000 10567.1 -1.9% 16.29% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-1.84 %
Russell 2000
17.44 %
Russell 2000
27.2 %
NASDAQ Composite
29.87 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Home Furnishing Stores Home Furnishing Stores Auto Dealerships 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 12 14.23 4.81% -2.54%
Last Week 11 14.23 6.87% -4.31%
13 Weeks 189 15.08 20.98%
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 GMK Gruma Sa De Cv Ads 107
Top Fundamental CACC Credit Acceptance Corp 48
Top Tech. & Fund. NOG NORTHERN OIL AND GAS 107
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
Top Technical WNS WNS (Holdings) Ltd 65
Top Fundamental GMCR Green Mountain Coffee Roasters 58
Top Tech. & Fund. GMCR Green Mountain Coffee Roasters 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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