Weekly Newsletter 07/15/11
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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  
Another brief newsletter this week as we leave Friday afternoon for Lanai to compete in a road bike race, hopefully without suffering the fate of so many TdF riders this year.

The NASDAQ Composite found support at the 50 dma level on Thursday and moved higher on Friday in response to Google's earnings surprise. This puts a hold on the recent decline, but with uncertainty continuing in Europe and the debt ceiling unresolved at home, it seems likely that consolidation will continue at least until the debt ceiling is raised.

Although the markets may breath a sigh of relief and rally when a deal is finalized, it seems that whatever the outcome of the debt ceiling negotiations, we are in for a minimum $1.5 trillion cut from Government spending. This will have negative effects on the economy in the short term as aggregate demand falls and unemployment increases.  The effects of government austerity measures are everywhere to see in Europe where only Germany is on a growth path so I fear the chances of a double-dip recession are increasing.

NASDAQ Composite

 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 sit

This week we answer another subscribers question about the success rate of Head and Shoulders Top (HST) formations.

In our newsletter of 6/25/2011 we reported that 73% of confirmed breakdowns from a HST pattern remained below their breakdown price for more than 1 session.

Now we look at at what percentage achieve their target price according to Bulkowski's method of determining the target price. (See our HST methodology page).

Our database records 3465 successful breakdowns from the HST pattern since we started tracking this data in 2006. By looking at the daily low set in the days following the breakdown, we found that the low met or exceeded the target price 2053 times. That's a success rate of 59%.

This success rate conforms quite well with Bulkowski's finding of a 63% success rate. As we noted before, our sample is considerably bigger than his sample of 461 and our time period 7/2006 - 6/2011 is very different from his: mid 1991 to mid 1996. Also our algorithms, each conceived independently, for recognizing the HST pattern would also necessarily be very different.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12479.7 -1.4% 7.79% Up
NASDAQ 2789.8 -2.45% 5.16% Up
S&P 500 1316.14 -2.06% 4.65% Up
Russell 2000 828.78 -2.79% 5.76% Up
Wilshire 5000 13941.7 -2.17% 4.9% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-1.4 %
Dow Jones
1.12 %
Dow Jones
5.87 %
Dow Jones
7.79 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Personal Computers Personal Computers Cigarettes Health Care Plans
 Most Improved Industry (by change in technical rank2)
+ 83
Drug Related Products
+ 115
Music & Video Stores
+ 154
Closed-End Fund - Debt
+ 173
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 17 12.23 4.93% 2.83%
Last Week 14 11.54 8.61% 3.86%
13 Weeks 185 12.62 11.03%
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 KOG Kodiak Oil & Gas Corp. 113
Top Technical QLTY Quality Distribution, Inc. 62
Top Fundamental PCLN priceline.com Incorporated 38
Top Tech. & Fund. PCLN priceline.com Incorporated 38
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 CRNT Ceragon Networks Ltd. 68
Top Technical DSCI Derma Sciences, Inc. 0
Top Fundamental JAZZ Jazz Pharmaceuticals, Inc. 60
Top Tech. & Fund. JAZZ Jazz Pharmaceuticals, Inc. 60
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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