Weekly Newsletter 04/16/10
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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  

The markets showed excessive exuberance this week as earnings season got underway, so a sharp reaction following the announcement of the SEC's civil suit for fraud against Goldman Sachs, disappointing earnings from Google and lower than expected consumer confidence, is not surprising. We showed last week that the NASDAQ Composite was hitting a resistance level and a correction was due. The index comfortably broke through resistance with three successive accumulation days at the beginning of the week but has now reverted to the point where former resistance may become support.

NASDAQ Composite

Volume levels for the large cap stocks rose almost to panic levels on Friday but the NASDAQ, although dipping 1.4%, avoided a distribution day. The overall outlook for technology stocks looks healthy so while we may see some continued selling on Monday, we may see the NASDAQ weather the storm in better shape than the broader markets.

The question for the financial sector is will the prosecutions stop with this one instance or are there other shoes to drop? Its unlikely that GS was the only firm indulging in the behavior cited by the SEC, so other law suits could follow. The SEC is presumably eager to show its teeth after the Madoff scandal, and it would certainly be in the political interests of the administration to pursue more action given public anger at Wall Street and the Republican's opposition to financial reform. If more prosecutions emerge then financial stocks will fall further. We saw in the case of Lehman Brothers and Bear Stearns how quickly things can go bad once confidence is lost so we could be in for another rough ride.

On the other hand, it is not in the Administration's interest to provoke another collapse of the markets as the recovery teeters along.

Bottom line? Its anyone's guess where we go from here.

As an aside, as I usually try to avoid politics, I'm reminded that when LTCM was on the verge of collapse, Greenspan rounded up 20 or so of the major financial institutions and persuaded them to put up capital so LTCM could be wound down in an orderly way and a financial panic was avoided. It seems to me that that is the nature of what is proposed in the current financial legislation which asks for the major institutions to buy into a fund that will be used for the orderly wind-up of an institution that poses a systemic risk. Attempts to label this proposal as perpetuating too big to fail reeks of political grandstanding without regard for the health of the country. If it was OK for Greenspan then, and demonstrably worked, why isn't it good for this Administration also?

Welcome to New Subscribers

The move up earlier this week brought us several new subscribers, so we would like to welcome you to our site. For your benefit, we are repeating some advice given earlier this year in our 'Top Tip' of the week.

 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

Revised CwH Trading Hints

An alert subscriber pointed out an inconsistency in our recommendations so I have revised our Trading Hints page for the cup-with-handle watchlist.

The revised page is here: CwH Trading Hints

While these revised trading hints are generally applicable, we also have some more specific recommendations which will further increase your chances of success:

1. Before the market opens, identify stocks on our CwH watchlist with an RS Rank of 92 or better (you can set a filter to select these for you)
2. Check the CANTATA Evaluator for these stocks and select those with CEF2 >= 0.6 and CEF3 >= 0.6.
3. Buy any of these stocks if we issue a breakout alert on them as close to the alert price as possible.
4. Set a hard sell stop 8% below the alert price immediately after purchase.


 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 11018.7 0.19% 5.66% Up
NASDAQ 2481.26 1.11% 9.35% Up
S&P 500 1192.13 -0.19% 6.91% Up
Russell 2000 714.62 1.66% 12.7% Up
Wilshire 5000 12451.4 0.03% 8.3% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
1.66 %
Russell 2000
12.02 %
Russell 2000
15.98 %
Russell 2000
12.7 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Home Furnishing Stores Home Furnishing Stores 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 18 16.08 7.76% 3.48%
Last Week 23 16.54 8.5% 3.58%
13 Weeks 231 18.08 16.56%
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 THM International Tower Hill Mines Ltd. 109
Top Technical WAC Walter Investment Management Corp. 52
Top Fundamental CAAS China Automotive Systems Inc. 78
Top Tech. & Fund. CAAS China Automotive Systems Inc. 78
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 GTE Gran Tierra Energy, Inc. 114
Top Technical PL Protective Life Corp. 51
Top Fundamental MELI Mercadolibre, Inc. 55
Top Tech. & Fund. PL Protective Life Corp. 51
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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