Weekly Newsletter 04/01/11
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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 NASDAQ Composite has been under accumulation since Wednesday indicating a welcome uptick in volume and increasing investor support for the rally that began on March 16. The index failed to clear resistance at 2802 on Friday but will likely press on next week to the next resistance level of 2840.

NASDAQ Composite

As volumes have risen over the last week, so have the number of breakouts. While cup-with-handle breakouts remain in the majority we have seen an unusually high percentage of flat-base breakouts resulting from stocks that fell into a trading range during the correction and are now resurging. The standout performer for the week was LOGM (LogMeln, Inc) which surged to 14.6% above its breakout price on Friday to close with a 6.7% gain.

 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

Follow Through Day Follow Through

Following last weeks analysis of the usefulness of Follow Through Days, I was advised that IBD had dropped the requirement that FTD volume should be higher than the average daily volume.

This now means that the rules for a FTD are reduced to:
  1. Day 1 of a tentative rally begins when a major index closes higher than the day's low or the previous day's close.
  2. On the fourth through seventh days of the rally there must be a close at least 1.7% higher than the previous close.
  3. On that day, the volume must exceed the previous day's volume.
Using this new definition, I analysed the major downward trend turning points over the last 5 years and found that out of 18 clearly defined bottoms an FTD occured for only 10 of them. (I extended the rule to include the eigth day for flexibility). These are shown on a large chart which you can see by clicking the smaller version below.

FTD Days

Based on this analysis, I think its fair to say that the FTD concept is insufficiently reliable to be used to determine when a new rally has begun. If you relied on this signal to re-enter the market, then you would have missed 45% of the ralies over the last 5 years. (Note that this includes three FTD's where the FTD was not until the eighth day. Using a strict application of the rules would have yielded only a 39% success rate).

So what is a reliable signal for downward trend turning points? We'll investigate that next week.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12376.7 1.28% 6.9% Up
NASDAQ 2789.6 1.7% 5.15% Up
S&P 500 1332.41 1.42% 5.95% Up
Russell 2000 846.77 2.78% 8.05% Up
Wilshire 5000 14110.8 1.64% 6.18% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
2.78 %
Russell 2000
8.05 %
Russell 2000
24.66 %
Russell 2000
8.05 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Long-Term Care Facilities Long-Term Care Facilities Silver Silver
 Most Improved Industry (by change in technical rank2)
Recreational Goods - Other
+ 116
Home Furnishing Stores
+ 98
Beverages - Brewers
+ 143
Long-Term Care Facilities
+ 166
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 14 14.38 4.16% 1.88%
Last Week 14 13.92 11.66% 8.06%
13 Weeks 240 14.92 11.87%
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 MDM Mountain Province Diamonds, Inc. 113
Top Technical DEPO DepoMed, Inc. 80
Top Fundamental SWI SolarWinds, Inc. 45
Top Tech. & Fund. SWI SolarWinds, Inc. 45
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 MPEL Melco Crown Entertainment Ltd (ADR) 99
Top Technical REV Revlon, Inc. 61
Top Fundamental BLC Belo Corp. 76
Top Tech. & Fund. BLC Belo Corp. 76
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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