Weekly Newsletter 01/29/10
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  

The NASDAQ Composite has corrected 8% from its high at the beginning of the year and has now fallen through 4 support levels. The next support level is at 2059 which would represent a 12% correction. The markets went up too quickly and it looks as though the correction is now underway. .It was surely significant that the markets could not stay positive after Friday's GDP numbers and a reported improvement in consumer confidence to the highest level in two years by the University of Michigan. Also significant was a fall in Microsoft despite beating earnings estimates. It looks as though there is more pain to come.

NASDAQ Composite

 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

We return again to our examination of the factors that contribute to a successful breakout. (Which we defined as providing the potential for a gain of at least 25%). We noted last week that we had heard from a subscriber who only considers breakouts with an RS Rank level of 99 but after reading our analysis of RS Rank two weeks ago is considering switching to considering RS Rank levels of 91 or above. We promised to examine that scenario more closely and that's what we do today.

While resuming our analysis last week we found that some cases were missing from the data set we were working with and we have since done a new extraction which slightly alters our results of two weeks ago. Here is a scatter plot of mean maximum gain after breakout compared to RS Rank. The total number of breakouts considered is 3261
going back to January, 2004 (we only consider RS Rank of 80 and above and volumes on breakout day of 150% of average volume).

mean max gain vs RS
To understand what the chart means for our trading prospects, we look at a tabulation of the number of observations in each of our cut-off points.

RS Rank

<= 91 >=92 Total
max gain >= 25% Count 1515 730 2245
% of Total 46.50% 22.40% 68.80%
< 25% Count 653 363 1016
% of Total 20.00% 11.10% 31.20%
Count 2168 1093 3261

% of Total 66.50% 33.50% 100.00%

Mean max gain 22.20% 26.40%

We see that if traded on breakouts with an RS Rank of 92 or above, without any additional filtering criteria, we would have entered 1093 positions for an average maximum possible gain of 26.4%. Over the five years covered by our data, that would be approximately 200 trades per year, way to many for most of us. Let us look then at our subscriber's decision to trade only breakouts with an RS Rank of 99.

RS Rank

<= 98 99 Total
max gain >= 25% Count 2188 57 2245
% of Total 67.10% 1.70% 68.80%
< 25% Count 991 25 1016
% of Total 30.40% 0.80% 31.20%
Count 3179 82 3261

% of Total 97.50% 2.50% 100.00%

Mean max gain 23.50% 27.10%

Now we would trade an average of under 20 positions a year for an average maximum gain of 27.1%.

We conclude that if the decision to enter a position is based on RS rank value alone, then a choice of an RS Rank Value of 99 is a very good one. However, the data would suggest that an RS Rank of 97 could be a better choice.

mean max gain against all RS

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 10067.3 -1.04% -3.46% Up
NASDAQ 2147.35 -2.63% -5.37% Down
S&P 500 1073.87 -1.64% -3.7% Up
Russell 2000 602.04 -2.44% -5.05% Down
Wilshire 5000 11099.4 -1.68% -3.46% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-1.04 %
Russell 2000
3.65 %
Dow Jones
9.77 %
Wilshire 5000
-3.46 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Publishing - Newspapers Housewares & Accessories Housewares & Accessories 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 10 11.69 6.58% 1.75%
Last Week 9 11.31 1.71% -7.5%
13 Weeks 172 12 14.24%
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 HOO Cascal N V 108
Top Technical JAZZ Jazz Pharmaceuticals, Inc. 77
Top Fundamental VIT VanceInfo Technologies Inc. 64
Top Tech. & Fund. VIT VanceInfo Technologies Inc. 64
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 BLC Belo Corp. 109
Top Technical BLC Belo Corp. 109
Top Fundamental IGTE iGate Corporation 68
Top Tech. & Fund. IGTE iGate Corporation 68
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.