Market participants were nervous about stocks having become over extended since Bernanke announced the likelihood of QE2 back in August, so a bleak outlook for future earnings from Cisco Systems provided a reason for profit taking on Thursday. This extended into Friday as China's stock market fell almost 5% following a rise in inflation there. The NASDAQ Composite took its first weekly loss in six weeks. Ironically, Friday's losses came on the day the Federal Reserve implemented QE2 with the first purchase of US treasuries amounting to $7.2 Billion.

Where we go from here is uncertain, but it would seem the probabilities are weighted more to the downside than the upside.

The number of confirmed breakouts fell to eight this week. This indicates that the appetite for risk was significantly diminished ahead of imminent QE2 implementation and uncertainty about global currency rates.

To prepare the MTC Strategy progress report, we tweaked our CwH Backtest tool to allow the automatic substitution of the MTC criteria, Consequently, you can now choose between two strategy options as a starting point for choosing parameters for the backtest.

MTC Strategy Progress Report

In February 2010 we finalized our "Meets Target Criteria" (MTC) strategy and this week we look at the returns you would have earned if you had traded Cup With Handle (CwH) breakouts using that strategy.

As a reminder, our MTC strategy suggests buying CwH breakouts when breakout day volume reaches 2.25 times average daily for CwH breakouts that meet the MTC criteria on breakout day. The MTC criteria are:

• Average daily volume >= 100,000
• Breakout price >= $6
• Relative Strength (RS) Rank >= 92
• CANTATA Fundamental Criterion #2 (CEF2) >= 0.6
• CANTATA Fundamental Criterion #3 (CEF3) >= 0.6

The strategy also suggests:

• Do not open a new position if our NASDAQ Market trend signal is down
• Sell if the price drops 8% or more below the breakout price (BoP Stop Loss)
  
• Sell if the price drops by 8% or more from the highest intra-day price to date
• Take a profit at 25% gain

Using our CwH backtest tool, we found that following these rules since March 1 (just after we announced the strategy) would have returned 30.78% profit.


By contrast, if you had traded CwH breakouts using our basic criteria for issuing an alert, your return would have been a negative 3.37%.


Conclusion

The MTC Strategy, if used with discipline, would have provided a very acceptable return in a volatile year.