Weekly Newsletter 03/12/10
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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  

At week's end, the NASDAQ Composite closed 4.3% higher for the year surpassed only by the Russell 2000 which gained 6.7%. Friday's close left the NASDAQ with its first loss in seven sessions but that still left it 13% higher than its February 5 low. We see from the chart that it has tracked close to its 2 standard deviation Bollinger band for the last two weeks and while such an extended run has been seen several times in the last year, it looks as though we are in for another period of consolidation now.

NASDAQ Composite

 New Features this Week Additional Value that we added this week

We added our 'thumbs up'  thumbs upindicator to our daily email and also to our 'recent breakouts' report this week. Stocks earn this symbol when they meet the target criteria we have established recently.See Factors Affecting Performance After Breakout. This symbol has already been added to our daily alert monitors.

We also made a slight modification to our new CwH Backtest Tool so that the 'Buy Limit as % of BoP' will apply to the 'Buy on Alert' option. This was done to avoid buying takeover candidates which could show a large gain on breakout day.

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

Now that the CwH backtest tool is complete, we can start some rigorous investigation of the factors that lead to selection of successful breakouts. We have the ability to automate the testing of many scenarios through the simulator and this week we looked at the level of breakout day volume which gave the best return after breakout.

If you read our Factors Affecting Performance After Breakout then you might recall that we found that volumes above 2.25 times the 50 day average volume were more likely to give returns of 25% or more. To confirm this value we ran a series of simulations going back to 2004 with required breakout day volume to average volume ratios of from 1 to 5. We also varied the stop loss below BoP factors and trailing stop factors. To minimize the effects of the sequence in which stocks were bought (see last weeks newsletter for an explanation) we used a portfolio size of 20 stocks.

The best returns were obtained when buying on breakout alert when the volume to average volume ratio was exactly 3, selling if the price fell to 8% below the BoP, or selling with a trailing stop of 11%. Here's the chart of returns. Notice how a portfolio size of 20 stocks prevented major losses since October 2008 - evidence of the benefits of diversification!

Volume Backtest 1

If we limit our portfolio to 4 positions, we get almost double the return, but with more volatility.

4 positions

You can verify these results and experiment with your own parameters on our web site. Go to the Evaluate > Analytical Tools > CwH Backtest menu choice


 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 10624.7 0.55% 1.89% Up
NASDAQ 2367.66 1.78% 4.34% Up
S&P 500 1149.99 0.99% 3.13% Up
Russell 2000 676.58 1.59% 6.7% Up
Wilshire 5000 11984.2 1.16% 4.23% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
1.78 %
Russell 2000
12.69 %
Russell 2000
13.98 %
Russell 2000
6.7 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Home Furnishing Stores 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 23 15.54 7.04% 3.88%
Last Week 39 13.92 9.93% 6.87%
13 Weeks 229 15.85 13.7%
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 WILC G. Willi Food-International Ltd. 114
Top Technical JAZZ Jazz Pharmaceuticals, Inc. 86
Top Fundamental CAAS China Automotive Systems Inc. 75
Top Tech. & Fund. CTEL City Telecom HK Ltd. 81
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 MEA Metalico Inc. 110
Top Technical CVVT China Valves Technology, Inc. 78
Top Fundamental HITK Hi Tech Pharmacal Co. Inc. 70
Top Tech. & Fund. NUS Nu Skin Enterprises Inc. 54
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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