Weekly Newsletter 01/16/10
Login   Trial   Guest
You are receiving this email because you are or were a BreakoutWatch.com subscriber, or have subscribed to our weekly newsletter. This newsletter summarizes the breakout events of the week and provides additional guidance that does not fit into our daily format. It is published each weekend.
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  

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:
  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.
The methodology for obtaining the data on which we will perform our analysis was described in last week's newsletter.

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.

Max Gain vs RS Rank

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.

Filtered for volume at least greater than adv

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.

mean max gain vs 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
Index Value Change Week Change YTD Trend
Dow 10609.7 -0.08% 1.74% Up
NASDAQ 2287.99 -1.26% 0.83% Up
S&P 500 1136.03 -0.78% 1.88% Up
Russell 2000 637.96 -1.02% 0.61% Up
Wilshire 5000 11715 -0.9% 1.89% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-0.08 %
Dow Jones
3.53 %
Russell 2000
22.87 %
Wilshire 5000
1.89 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Housewares & Accessories Aluminum 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 24 11.23 8.16% 4.71%
Last Week 42 9.77 9.34% 2.59%
13 Weeks 165 11.77 15.07%
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 CDR Cedar Shopping Centers Inc. 105
Top Technical SCSS Select Comfort Corporation 105
Top Fundamental TRCR Transcend Services, Inc. 66
Top Tech. & Fund. TRCR Transcend Services, Inc. 66
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 CDR Cedar Shopping Centers Inc. 112
Top Technical RNP Cohen & Steers REIT & Preferred Income Fun 77
Top Fundamental HMA Health Management Associates Inc. 99
Top Tech. & Fund. HMA Health Management Associates Inc. 99
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.

If you received this newsletter from a friend and you would like to receive it regularly please go to the BreakoutWatch.com site and enter as a Guest. You will then be able to register to receive the newsletter.

Copyright © 2010 NBIcharts, LLC dba BreakoutWatch.com. All rights reserved.
" BreakoutWatch," the BreakoutWatch.com "eye" logo, and the slogan "tomorrow's breakouts today" are service marks of NBIcharts LLC. All other marks are the property of their respective owners, and are used for descriptive purposes only.

BreakoutWatch is not affiliated with Investor's Business Daily or with Mr. William O'Neil. Our site, research and analysis is supported entirely by subscription and is free from advertising.

To unsubscribe from further breakoutwatch.com newsletters, please click here.