Weekly Newsletter 01/06/12
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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  

Welcome to the New Year and what we hope will be a year in which the private investor regains faith in the markets, businesses invest some cash in their future and add to their human resources, and the economy continues to improve.

As always, we focus our attention on the NASDAQ market as that's where experience has shown that the most profitable breakouts come from.

Our trend model for the NASDAQ shows an upward bias as the index begins to break out of a descending triangle pattern. The index attempted to break above the 200 dma on Tuesday but was stymied as it hit the descending resistance line. On Thursday the index rallied again with an accumulation day and on Friday the 200 dma provided support in early trading allowing the index to close the week with a healthy 2.7% gain. It is also encouraging to see volume for the week pickup although the volume trend overall is downward. We really need to see some above average volume to confirm the upward trend.

The number of confirmed breakouts (at the 150% ADV level) rose this week almost to the 13 week average level but the gains were a meager 2.4% by Friday's close. We consider the markets to be still fragile and that those who want to trade in this environment must be nimble.

NASDAQ Composite
 New Features this Week Additional Value that we added this week

Our intraday charts are now available on both the 'Alerts Issued Today' page and the 'Alert Monitor'. The charts now include an intraday volume indicator, but note that the volume data can be up to 20 mins delayed. The volume data is shown as a % of the average daily volume so you can immediately see the the level of trading interest in the stock compared to the 50 day average.

We have also modified the email alert to include a link to the intraday chart.

Intraday chart for SHFL

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

More on the Intraday Chart and the Importance of Volume.

Access to the intraday charts has confused some subscribers so we explain again how to access them.

On each list the symbol gives you access to both a historical chart and the intraday chart. Clicking the symbol gives you access to the historical chart as it has always done. However, if you hover your mouse over the symbol a small pop-up appears with a link in it to the intraday chart, like this:

intraday pop-up

Importance of Volume

Although we consider a breakout to be successful if the volume on breakout day exceeds 150% of the 50 day average (the O'Neil criterion), our research has shown that breakouts with volume higher than 225% of the ADV have a greater probability of delivering higher returns (see Factors Contributing To Breakout Performance).

By placing a filter on the email alerts you will receive (this is done at the watchlist level) you can control at what volume level you will receive an alert. There are difficulties in using this knowledge however:
  • If you wait until the actual volume has reached 225% of ADV, then the price will likely have moved well above the breakout price, causing you to lose some profit.
  • If you buy when the breakout price is reached, regardless of volume, then the 225% volume level may not be reached that day.
Our suggestion then is that you buy when a stock reaches its breakout price, regardless of volume (provided the market trend is up)  and sell later in the day, or at the next open, if the target volume is not met. You can verify this strategy with our CwH backtest tool by toggling the 'Sell at open if unconfirmed' option.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12359.9 1.16% 1.16% Down
NASDAQ 2674.22 2.65% 2.65% Up
S&P 500 1277.81 1.61% 1.61% Down
Russell 2000 749.71 1.19% 1.19% Up
Wilshire 5000 740.92 -94.31% -94.31% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
2.65 %
Russell 2000
11.32 %
Dow Jones
-2.35 %
NASDAQ Composite
2.65 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks

Toy & Hobby Stores Specialty Eateries Personal Computers
 Most Improved Industry (by change in technical rank2)
Medical Practitioners
+ 66
Medical Practitioners
+ 67
Toy & Hobby Stores
+ 169
Toy & Hobby Stores
+ 200
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 26 22.85 3.74% 2.39%
Last Week 3 22.08 5.21% -0.57%
13 Weeks 301 23.77 9.7%
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 EGAN eGain Communications Corporation  111
Top Technical RPTP Raptor Pharmaceutical Corp.  91
Top Fundamental RAX Rackspace Hosting, Inc.  39
Top Tech. & Fund. RAX Rackspace Hosting, Inc.  39
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 WINN Wynn Resorts, Limited  69
Top Technical SHFL Shuffle Master, Inc.  56
Top Fundamental CLR Continental Resources, Inc.  38
Top Tech. & Fund. CLR Continental Resources, Inc.  38
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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