BreakoutWatch.com Weekly Review for 01/30/2010

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).

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
	>= 25%	% of Total	46.50%	22.40%	68.80%
	< 25%	Count	653	363	1016
	< 25%	% of Total	20.00%	11.10%	31.20%
Total		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
	>= 25%	% of Total	67.10%	1.70%	68.80%
	< 25%	Count	991	25	1016
	< 25%	% of Total	30.40%	0.80%	31.20%
Total		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.

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

Copper

Most Improved Industry (by change in technical rank²)

Aluminum
+ 54

Aluminum
+ 99

Long Distance Carriers
+ 213

Long Distance Carriers
+ 210

Charts of each industry rank and performance over 12 months are available on the site

# of Breakouts

Period Average¹

Max. Gain During Period²

Gain at Period Close³

This Week

11.69

6.58%

1.75%

Last Week

11.31

1.71%

-7.5%

13 Weeks

172

14.24%

-3.45%