Weekly Newsletter 01/08/10
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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  
The markets welcomed the New Year on an optimistic note with gains by all the major indexes. A disappointing jobs report on Friday caused some intraday head-scratching but a late day surge allowed all the indexes to close in positive territory. This was a sign that although the job situation is a concern, and some respected economists believe a double dip is still a possibility, the markets believe corporate earnings will rise this year and share prices along with them.

A further sign of a positive mood was a return to mostly above average daily volume. This allowed us to record forty-one confirmed breakouts compared to a weekly average of less than 10 for the last three months. Some of the higher -fliers were Brooks Automation (BRKS) which broke out from a CwH base to rise 19.4% and Pioneer Drilling (PDC) which also broke out from a CwH base to gain 17.6%.

We are starting a series of research articles into the factors that determine a successful breakout over the medium term and begin today with an analysis of our assumptions about volume. See our top tip below.
 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
Does Breakout Day Volume Affect Later Returns?

This week we start a series of articles on what determines a viable breakout from a cup-with-handle chart pattern. By a viable breakout we mean:
  1. More likely than not to provide the opportunity for a gain of at least 25%
  2. Low probability of failure (by which we mean low probability of being stopped out using an 8% stop loss).
  3. Likely to achieve the profit objective within six months.
We start today by looking at the most fundamental question: what constitutes a breakout?

The first requirement is that a breakout must exceed a target price. For our purposes, the target price is determined by the pivot point of the chart pattern that applies to the stock. We usually refer to it as the breakout price or BoP and for our analysis we are going to require that the BoP be $0.10 above the pivot.

The second requirement is that the stock must close the day above its BoP.

Thirdly, the daily volume must exceed the average volume by some factor. Since we began our site in 2003, we have assumed the necessary factor was 1.5 times the 50 day average volume. This factor comes from the work of William O'Neil who suggested it in "How to Make Money in Stocks". We have never examined that assumption and that's our focus in this article.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 10618.2 1.82% 1.82% Up
NASDAQ 2317.17 2.12% 2.12% Up
S&P 500 1144.98 2.68% 2.68% Up
Russell 2000 644.56 1.65% 1.65% Up
Wilshire 5000 11821 2.81% 2.81% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Wilshire 5000
1.12 %
NASDAQ Composite
4.82 %
Russell 2000
34.01 %
Wilshire 5000
2.81 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Aluminum Paper & Paper Products Silver Copper
 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 41 9.77 7.27% 5.05%
Last Week 4 7.85 21.28% 14.93%
13 Weeks 148 10.54 14.57%
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 USEG U.S. Energy Corp Wyo 114
Top Technical CLCT Collectors Universe Inc 77
Top Fundamental TRCR Transcend Services Inc 67
Top Tech. & Fund. ATNI Atlantic Tele-Network 37
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 SCSS Select Comfort Corp 110
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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