Weekly Newsletter 01/22/10
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  

It is an oft-stated truism that the markets hate uncertainty and they received a double-whammy of the heebie-jeebies late this week. On Thursday, the Administration introduced some ill-defined constraints on the bank's ability to trade for their own account and on Friday Ben Bernanke's re-confirmation as Fed Chairmen seemed increasingly doubtful. In general, Wall Street is grateful for Bernanke's stewardship of the financial crisis, especially as it allowed them to make substantial profits by trading on cheap money provided by the Fed. Now that the Administration has moved to reflect populist anger towards the banks, any change at the head of the Fed could signal a less accommodating stance.

While these factors accelerated the slide on Thursday and Friday, the markets were already in a nervous state as earnings were generally below estimates and world growth in 2010 is threatened by China's plans to curtail growth and control inflation by stifling lending by the nation's banks.

As usual we review prospects for the NASDAQ as that market is the incubator for most breakout stocks. The chart contains four harbingers of more pain to come.The index has fallen
  1. through the lower bounds of its 9-month ascending trend line of closing prices
  2. lower than the 50 day moving average
  3. outside the lower Bollinger band by a substantial margin not seen since the March, 2009 bottom.
Finally, recalling that resistance becomes support, the index looks about to break through the support line at 2205. Should it do so, there is no clearly defined support level and the present 5% correction could easily double to 10%.

NASDAQ Composite

Market turbulence has a history of either subsiding or worsening over the weekend so we make no predictions as to what Monday will bring.

 New Features this Week Additional Value that we added this week

We have updated our Zacks strategy backtest tool to include the latest available data and also put in place a process to update the backtest data base on a daily basis going forward. The default parameters for the tool have been adjusted to show the most recent 12 months of data.

Over the last 12 months, using the strategy with a buy on alert and a 8% stop loss on that alert price would have yielded a 48% return (as of writing 1/20/2010).  However, using a trailing stop of 12% would have yielded a return of 70%. The best return of 114% would have been obtained with 9% stop and 12% trailing stop.

To use our Zacks Strategy you must first subscribe to Zacks. You can get a free trial by clicking their logo. We are not affiliated with Zacks, but we do get a commission on on any referrals, so please click this link.

Zacks Strategy Results

A subscriber has suggested porting this backtest tool to work with all our data, not just Zacks Rank 1 stocks, and we are in the process of doing so.

This Week's Top Tip Tips for getting the most out of our site

Our investigation of the factors that contribute to a viable breakout from a cup-with-handle chart pattern have generated a good deal of interest. This week we heard from a subscriber who only considers breakouts with an RS Rank level of 99 but after reading last weeks analysis is considering switching to considering RS Rank levels of 91 or above.

Now with just 1.7% of breakouts having an RS Rank of 99 its possible that he could be missing a lot of opportunities. On the other hand it may be that the stocks with an RS Rank of 99 have a much lower failure rate than those ranked 91 or more and may give a better overall return. To resolve this, we wanted to analyze in more detail the performance of those stocks ranked  91 or better.

While doing so, we discovered late on Friday afternoon that the data set on which we were doing the analysis was incomplete and needed to be re-extracted. Handling these large volumes of data is time consuming and we couldn't complete the extraction in time to do a meaningful analysis before the weekend, so we will have to resume our analysis next week.

I don't expect the  missing data to have a material affect on the results but it is better to be sure.

I know this is frustrating to our subscribers as it is to me, but researchers often find errors in their experimental methods and have to begin again and I'm sure you would prefer to have confidence in the results.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 10173 -4.12% -2.45% Up
NASDAQ 2205.29 -3.61% -2.81% Up
S&P 500 1091.76 -3.9% -2.09% Up
Russell 2000 617.12 -3.27% -2.67% Up
Wilshire 5000 11289.1 -3.64% -1.81% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
-3.27 %
Russell 2000
2.71 %
Russell 2000
12.52 %
Wilshire 5000
-1.81 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Housewares & Accessories Housewares & Accessories 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 5 11.31 3.4% -3.06%
Last Week 25 11.23 9.92% 0.83%
13 Weeks 162 11.85 14.86%
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 BLC Belo Corp. 109
Top Technical DNH WisdomTree Pacific ex-Japan Equity Inc 22
Top Fundamental PEGA Pegasystems Inc. 49
Top Tech. & Fund. VIT VanceInfo Technologies 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. 107
Top Technical CDR Cedar Shopping Centers Inc. 107
Top Fundamental CDR Cedar Shopping Centers Inc. 107
Top Tech. & Fund. CDR Cedar Shopping Centers Inc. 107
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.