Weekly Newsletter 01/20/12
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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  

The NASDAQ Composite leaped over two resistance hurdles this week but Friday's minor retreat indicates traders are beginning to wonder if the the party is over, at least for now. The index has been marching up the channel between the 1 and 2 standard deviation Bollinger Bands and just crossed above the 2nd on Thursday which probably triggered programmed selling. Google's failure to meet earnings expectations held the index back on Friday. Now that the index is below the 2 SD line there seems no technical reason why the rally should not continue, at least until the strong resistance level at 2862-2878.

NASDAQ Comp

There may be fundamental reasons for a halt, however, Companies usually manage earnings expectations so well that more than 70% beat expectations, but that number has fallen to just over 50% this earnings season so we could see some of the air come out of the balloon.
 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

Recommended Cup with Handle Trading Strategy in Current Market Conditions

While volatility has decreased, and the level of concern over the European debt crisis has diminished somewhat, I think it useful to consider what trading strategy has been working since the recent market bottom in October.

My testing server gives me the opportunity to test many thousands of trading scenarios to find which one was optimum over the last 3 1/2 months and here are the results:
  1. Sell if the price drops by 4% from the breakout price. This is considerably tighter than has been previously recommended and is due to the rapid swings we have seen where the markets can move 2-3% up or down on consecutive days. There is often a reluctance to use tight stops for fear of missing a subsequent gain, but backtesting shows that cutting a loss short and moving on the next possible winner is the better strategy.
  2. Use a tight trailing stop of 2%. A trailing stop is a stop price based on the highest (intraday) price achieved since breakout. Take the money and run while you still have a profit.
  3. Breakouts that meet our Meets Target Criteria) MTC standard do perform better overall than those that don't. As a reminder our MTC criteria are shown below.
  4. Buy on breakout alert, if possible.
  5. Only buy when the NASDAQ market trend is up
Meets Target Criteria Definition
  • must be on our cup-with-handle watchlist
  • 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
  • must be in the top 25% of industry group rankings (that is, have an industry rank of less than 54)

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12720.5 2.4% 4.12% Down
NASDAQ 2786.7 2.8% 6.97% Up
S&P 500 1315.38 2.04% 4.59% Down
Russell 2000 784.62 2.67% 5.9% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
2.8 %
Russell 2000
7.72 %
Dow Jones
0.31 %
NASDAQ Composite
6.97 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Toy & Hobby Stores Toy & Hobby Stores Toy & Hobby Stores Specialty Eateries
 Most Improved Industry (by change in technical rank2)
Pollution & Treatment Controls
+ 33
Major Airlines
+ 88
Cement
+ 172
Toy & Hobby Stores
+ 204
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 22 25.46 4.77% 2.38%
Last Week 24 24.69 10.71% 5.72%
13 Weeks 330 26.23 11.28%
5.39%
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
Category
Symbol
Company Name
Expected Gain1
Best Overall NQ NetQin Mobile Inc (ADR)  114
Top Technical MBI MBIA Inc.  66
Top Fundamental RAX Rackspace Hosting, Inc.  46
Top Tech. & Fund. RAX Rackspace Hosting, Inc.  46
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
Category
Symbol
Company Name
Expected Gain1
Best Overall LSCC Lattice Semiconductor  100
Top Technical EC Ecopetrol S.A. (ADR)  19
Top Fundamental OAS Oasis Petroleum Inc.  46
Top Tech. & Fund. OAS Oasis Petroleum Inc.  46
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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