Weekly Newsletter 03/05/10
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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  

All of the major indexes are finally positive for the year and the NASDAQ Composite and Russell 2000 set new highs since October 2008. However, the NASDAQ's Friday high was only one point above its previous high and the index closed just lower. This means it is testing resistance and could move lower although that is likely to be short lived if it does so. The weekly chart shows the strength of the move up this week with higher than average volume.


Things are looking more promising. The number of breakouts increased sharply to 39 after just 13 last week.


 New Features this Week Additional Value that we added this week

Our new tool to backtest breakouts from a cup-with-handle pattern is finally ready!

This tool is similar to our Zacks Strong Buy backtest tool with some nice features specific to the CwH pattern:

  • Set your own breakout volume level

The tool will find stocks that would have broken out if the required breakout volume is changed. This means you can adjust the definition of a breakout up or down from our standard 1.5 times adv definition and backtest using the new definition.

  • Test sensitivity to RS Rank and our CEF2 (last two quarters of positive earnings) and CEF3 (accelerating quarterly earnings) metrics.

As we have reported over the last few weeks, performance after breakout can be improved by choosing stocks with a minimum RS Rank of 92 and CEF2 and CEF3 scores of at least 0.6. You can test this conclusion for different volume and price levels.

Please read the 'How to Use This Tool' instructions before using.

The tool can be accessed under the Evaluate menu as shown here:

Analytical Tools

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

As you use the CwH backtest tool, you will notice that it is extremely sensitive to the period and start and dates you use. This is because the tool buys and sells stocks in sequence and a change of just one day or a slight change in a single parameter can have a big effect on the sequence of buys and sells. (You can examine the sequence of buys and sells in detail by clicking the 'View Transaction Data' button and copying the results into a spreadsheet).

This sensitivity to the sequence presents a problem because it makes it difficult to decide on which set of parameters is optimal. This is a common problem and explains one of the major problems of backtesting.

The solution is to run hundreds of simulations with different input parameters and the stock sequence scrambled each time to find the most consistent set of parameters. We haven't yet been able to do that but will develop an additional tool to do so . It may take a few weeks, however.

A less optimal solution is to run the test with a high number of positions. While not representing what you may do in real life, it will gather the most stocks into the sample and be less sensitive to the effects of the buy and sell sequence.

Finally, simulations can take quite a while, be patient. Try running it for at most two years at a time over different time frames.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 10566.2 2.33% 1.33% Up
NASDAQ 2326.35 3.94% 2.52% Up
S&P 500 1138.69 3.1% 2.12% Up
Russell 2000 666.02 5.96% 5.04% Up
Wilshire 5000 11846.5 3.43% 3.04% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
5.96 %
Russell 2000
10.49 %
Russell 2000
16.74 %
Russell 2000
5.04 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Major Airlines Major Airlines Housewares & Accessories Housewares & Accessories
 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 39 13.92 7.18% 5.65%
Last Week 13 12.46 11.59% 9.21%
13 Weeks 214 14.92 13.07%
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 AEA Advance America, Cash Advance Centers Inc. 115
Top Technical CVVT China Valves Technology, Inc. 80
Top Fundamental CAAS China Automotive Systems Inc. 74
Top Tech. & Fund. CTEL City Telecom HK Ltd. 75
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 LIZ Liz Claiborne Inc. 104
Top Technical GET Gaylord Entertainment Co. 56
Top Fundamental PCLN priceline.com Incorporated 44
Top Tech. & Fund. PCLN priceline.com Incorporated 44
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.

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