Weekly Newsletter 10/09/09
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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  

A brief commentary this week as we are traveling Friday afternoon to a wedding in Hana.

The mood is bullish after service industries started to grow, jobless claims fell, and Alcoa started the third-quarter earnings season with an unexpected profit. The DJI and S&P 500 both achieved their highest close for the year. The NASDAQ Composite was just short of its highest close which came on September 22. The predominant view is that earnings will be better than expected which will again drive the markets higher.

In the short term, this view is more likely to prevail than not, and in the long term, sayeth, Keynes, we'll all be dead. For some balance, in the medium term, our future may look more akin to that described in this piece from the Economist. The headline should be “You cannot print your way to prosperity.”

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 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

As promised last week, we looked in more depth at the hypothesis that breakouts perform better if the volume on the day after breakout is at least as high as volume on breakout day.

We considered cup-with-handle breakouts back to January 1, 2004 and looked at three scenarios:

  1. Performance of breakouts in the 12 months following breakout using the normal confirmed breakout rule.
  2. Performance of breakouts in the 12 months following breakout when the following day's volume was greater than 150% of the average daily volume ( the volume requirement for a confirmed breakout)
  3. Performance of breakouts in the 12 months following breakout when the following day's volume was greater than the breakout day volume.

In each case we calculated the average gain from the breakout price to the intraday high in the following 12 months. Stocks were considered to fail if they fell by 8% from their breakout price before making a gain of at least 5%. Failures were counted for each scenario.

Because it is unlikely that one can buy a stock at the breakout price after waiting for the second day's volume we looked at the premium that would be paid by buying at the close on the second day. The results are presented in the following table.

Scenario No. of Breakouts % of Failures Avg. Gain 2nd Day Premium
1 5505 15.1% 37.4% -
2 3001 12.8% 41.4%


3 1041 13.0% 38.7% 3.8%


  1. Breakouts with a second day volume greater than the breakout volume do perform better and have a lower failure rate.
  2. The premium that is paid by waiting for the second day's volume to be confirmed negates the greater eventual gain.

If you have a comment or question, there is a thread running on the support forum under the topic "A Disciplined Approach to Opening a Trade".

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 9864.94 3.98% 12.4% Down
NASDAQ 2139.28 4.45% 35.65% Up
S&P 500 1071.49 4.51% 18.63% Up
Russell 2000 614.92 5.98% 23.12% Up
Wilshire 5000 11067.5 4.74% 21.79% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
5.98 %
Russell 2000
27.85 %
Russell 2000
31.38 %
NASDAQ Composite
35.65 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Silver 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 9 14.69 10.34% 8.19%
Last Week 12 14.23 10.47% 5.05%
13 Weeks 191 15 22.08%
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 LCAV Lca-vision New 107
Top Technical COT Cott Corporation 92
Top Fundamental CTRN Citi Trends Inc 56
Top Tech. & Fund. CTRN Citi Trends Inc 56
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 CACC Credit Acceptance Corp 48
Top Technical CACC Credit Acceptance Corp 48
Top Fundamental CACC Credit Acceptance Corp 48
Top Tech. & Fund. CACC Credit Acceptance Corp 48
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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