Weekly Newsletter 01/21/11
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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 expected correction to the NASDAQ came a week or two early as we had expected it to test its 2007 high before retreating. The weekly chart shows that the 2.4% loss for the week is the biggest weekly loss since August 14, 2009 when the index gave up 5%.

NASDAQ Composite

Volume for the week was below the 50 day (10 week) average indicating that, at least for now, this is a mild correction. The index closed the week at 2689.5. The lower trend line is at 2670 and a fall below that level could indicate that a more serious correction down to the outer Bollinger Band at 2640 is likely.

The number of breakouts fell to 9 from 17 last week reflecting the correction. While a fall in breakouts may seem disappointing, that is actually good as fewer breakouts means less potential for exposure to a downward trend.

In contrast, there were 31 breakdowns with an average loss since breakdown of 3.4%. In the table below, SS refers to breakdowns from the "Short Sale" (or 50 dma breakdown) pattern which identifies stocks falling below their 50 day moving average, and HS refers to breakdowns from a Head and Shoulders Top pattern. FB refers to a Flat Base pattern.

Breakdown Date Symbol Pattern Loss since Breakdown

Average loss since Breakdown

 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
Short Sales in Focus

With the number of breakdowns increasing and the possibility of a correction ahead, you may wish to consider persuing some short sale opportunities.

We offer two watchlists that identify potential short sale candidates:
  • 50 DMA Breakdown (also called Short Sale)
This pattern is based on the guidelines offered in How to Make Money Selling Stocks Short by William O'Neil with Gil Morales, with additional requirements and constraints of our own. The methodology is described here and there are guidelines on trading this pattern here.
  • Head and Shoulders Top
The Head and Shoulders Top is one of the most reliable breakdown patterns. It is the inverse of a head and shoulders bottom which is a trend reversal pattern for recognizing bottoms. The methodology we use is described here and our guidelines for trading the pattern are here.

Breakdowns can also occur from a Flat Base pattern although we do not specifically identify that as a short sale pattern as breakouts can go in both directions from a flat base.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 11871.8 0.72% 2.54% Up
NASDAQ 2689.54 -2.39% 1.38% Up
S&P 500 1283.35 -0.76% 2.04% Up
Russell 2000 773.18 -4.26% -1.34% Up
Wilshire 5000 13499.3 -1.27% 1.57% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
0.72 %
Russell 2000
9.92 %
Russell 2000
18.83 %
Dow Jones
2.54 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Metal Fabrication Silver Silver Auto Parts Stores
 Most Improved Industry (by change in technical rank2)
Building Materials Wholesale
+ 80
Beverages - Brewers
+ 154
Gaming Activities
+ 159
Gaming Activities
+ 187
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 9 18.15 2.95% -0.24%
Last Week 17 19.15 9.18% -2.07%
13 Weeks 276 20 16.08%
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 MRT Morton's Restaurant Group, Inc. 108
Top Technical FPTB First PacTrust Bancorp, Inc. 51
Top Fundamental BIDU Baidu.com, Inc. (ADR) 38
Top Tech. & Fund. MELI MercadoLibre, Inc. 0
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 BEAV BE Aerospace, Inc. 44
Top Technical BEAV BE Aerospace, Inc. 44
Top Fundamental BEAV BE Aerospace, Inc. 44
Top Tech. & Fund. BEAV BE Aerospace, Inc. 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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