|Weekly Newsletter 01/16/10|
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I woke up feeling under the weather today and the market's sell-off didn't improve my mood. On top of that, we have school furlough days every Friday out here in Hawaii so our two boys needed entertaining so I played hookey from newsletter writing and took them to the beach.
Hopefully we will have better news to report next week.
In the meantime, I hope you find the study of the importance of RS Rank enlightening.
|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|
The Influence of RS Rank on Breakout Performance
This week we continue our investigation of the factors that contribute to a viable breakout from a cup-with-handle chart pattern. By a viable breakout we mean:
Today we look at the influence of RS Rank. We remind our readers that RS Rank is a measure of how a stock has performed against all other stocks over the last 12 months with recent performance being weighted more strongly. RS Rank can take values from 1 to 99 but we only select stocks with an RS Rank of at least 70 for our cup-with-handle pattern.
We start by looking at a scatter plot of our data since 2004.
The graph clearly shows that there is a positive relationship between RS rank and subsequent performance after breakout. This is confirmed by the positive slope of the regression line through the data. The data for this plot was not filtered by volume on breakout day and therefore includes all volume levels.
We saw last week that there is a weak relationship between volume on breakout day compared to average daily volume so we will now add a filter for only those cases where the breakout day volume was greater than the 50 day average volume.
We can see that the slope of the regression line has increased slightly showing that maximum gains after breakout improve if we also consider volume as a factor.
We are looking for values of our selection criteria which will give us higher probability of achieving a return after breakout of at least 25% so we next look at the mean maximum gain for each value of RS Rank.
The circles represent the mean maximum gain after breakout for each value of RS rank. The vertical bars represent the standard error in estimating the mean from our sample. Once again we have filtered the data to only include breakout days on which the volume was greater than the 50 day average.
The chart shows that RS Rank values greater than 90 give us best possibility of achieving maximum gains of 25% or more after breakout provided the volume on breakout day was greater than the average daily volume.
|Market Summary||Overview of market direction and industry rotation|
|Weekly Breakout Report||How confirmed breakouts performed this week|
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|
|Top Second Chances||Stocks that broke out this week and are still in buyable range|
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