Weekly Newsletter 11/12/10
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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  

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.

 New Features this Week Additional Value that we added this week

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.

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

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.

MTC Strategy Backtest

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%.

Basic CwH Strategy


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

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 11192.6 -2.2% 7.33% Up
NASDAQ 2518.21 -2.36% 10.98% Up
S&P 500 1199.21 -2.17% 7.54% Up
Russell 2000 719.27 -2.35% 13.44% Up
Wilshire 5000 12595.7 -2.13% 9.55% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Wilshire 5000
-2.13 %
Russell 2000
15.86 %
NASDAQ Composite
7.3 %
Russell 2000
13.44 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Silver Silver Beverages - Brewers Specialty Eateries
 Most Improved Industry (by change in technical rank2)
Staffing & Outsourcing Services
+ 43
Long-Term Care Facilities
+ 64
+ 198
Long Distance Carriers
+ 198
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 8 28.31 4.97% -0.75%
Last Week 56 28.69 9.69% 2.25%
13 Weeks 401 29.92 17.1%
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 ENTG Entegris, Inc. 113
Top Technical KRO Kronos Worldwide, Inc. 68
Top Fundamental GSIT GSI Technology, Inc. 107
Top Tech. & Fund. TPX Tempur-Pedic International Inc. 51
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 CSU Capital Senior Living Corporation 101
Top Technical XIDE Exide Technologies 96
Top Fundamental HUSA Houston American Energy Corporation 91
Top Tech. & Fund. HUSA Houston American Energy Corporation 91
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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