Weekly Newsletter 10/23/09
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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  

Despite mostly upbeat third quarter earnings, the S&P 500, NASDAQ Composite and Russell 2000 came under distribution this week as investors took profits.

Bloomberg reports that "All but 20 of the 138 companies in the S&P 500 that reported third-quarter results this week beat the average analyst estimate, including Apple Inc., Caterpillar Inc. and Morgan Stanley ... Since the start of the third-quarter earnings season, 80 percent of the companies in the S&P 500 that released results have reported better-than-estimated profits ...There’s not a higher proportion in data going back to 1993. "

It seems that investors have a hard time believing in the reality of the recovery, even though there is evidence that we are already out of recession and that earnings will continue to improve. The weekly chart of the NASDAQ composite shows the indecision present in the market as the 'DOJI' candlestick reappears as it has so often this year. Usually, the uncertainty has resolved itself to the upside and we expect the same result this time because of our position in the economic cycle.



 New Features this Week Additional Value that we added this week
We added a performance report for the High Tight Flag pattern. It is accessed under Monitor > Performance > High Tight Flag
This Week's Top Tip Tips for getting the most out of our site

In our 9/18/2009 newsletter we highlighted the superior performance of the high tight flag (HTF) pattern over the cup-with-handle (CwH). The introduction of the HTF performance report this week gives us another opportunity to emphasize how well breakouts from this pattern perform.

The histograms below are drawn from the performance reports for the HTF and CwH patterns. For each pattern, the upper chart shows the number of breakouts since January 1, 2008 that achieved maximum gains in the groupings shown, while the lower chart shows the percentage of breakouts that fell within each grouping.

The histograms clearly show the that the gains are skewed to the higher end of the gain ranges in the case of the HTF breakouts.

While there has been an exceptional number of HTF patterns this year because of the rapid recovery since March, the same conditions have produced a high number of CwH patterns. The comparison shows that given the choice of investing in a CwH breakout or a HTF breakout, the HTF is the wiser choice.

High Tight Flag PerformanceCup-with-Handle Performance
HTP Performance CwH Performance


 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 9972.18 -0.24% 13.63% Down
NASDAQ 2154.47 -0.11% 36.62% Up
S&P 500 1079.6 -0.74% 19.52% Up
Russell 2000 600.86 -2.49% 20.3% Up
Wilshire 5000 11117.5 -0.91% 22.34% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.11 %
Wilshire 5000
9.59 %
NASDAQ Composite
27.16 %
NASDAQ Composite
36.62 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Publishing - Newspapers Publishing - Newspapers Copper 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 10 12.08 5.76% 1.77%
Last Week 8 13.23 7.23% -2.39%
13 Weeks 166 13.77 20.32%
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 SWC Stillwater Mining Co 101
Top Technical CBOU Caribou Coffee Company Inc 81
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 CBOU Caribou Coffee Company Inc 84
Top Technical CBOU Caribou Coffee Company Inc 84
Top Fundamental CBOU Caribou Coffee Company Inc 84
Top Tech. & Fund. CBOU Caribou Coffee Company Inc 84
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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