Weekly Newsletter 02/10/12
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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 broke through resistance last Friday and as you can see from the inset chart, that level has now become support. (We examine the reasons for resistance and support levels in this week's tip below.) The support level was tested on Monday and Tuesday this week and looks as though it will be tested again. If the index falls through support then the 2880 level will again become resistance.

In the very short term, the vote in the Greek parliament this weekend will affect stock prices on Monday, but even if the vote supports the latest proposed austerity measures, it is unlikely to satisfy Germany, who have already said that the proposal is insufficient, so uncertainty will continue. The austerity measures throughout Europe are threatening another recession which cannot be good for the US economy either.

nasdaq comp.

 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
Why Resistance Becomes Support and Vice Versa

Looking at the inset chart we see that volumes were above the 50 day average in the four days prior to the index breaking through resistance last Friday. Those buyers will be satisfied with their purchases and will look to add to their positions. The heavy volume suggests that there are quite a few of them. Those that didn't buy into the market may be wishing they had and will be looking for a buying opportunity.

This opportunity presents itself as some traders take profits and prices fall to the support level, at which point buyers enter the market who believe in "buy the dip". Prices now rise again and short term traders again take profits, leading to another buying opportunity. You can see that this scenario played out on the first three days of this week. The tails on the candlesticks show where the lows of the day were, which was the point where buyers entered the market. If the index falls to the 28880 level again we may see another replay.

As prices start to fall to the support level the number of sellers, possibly swelled by short sellers, my increase to the point where sellers overwhelm those who are buying the dip and support will be broken. As prices fall through the support level then the scenario reverses. As prices fall, there will be those that hold on but will look for an opportunity to cut their losses. This opportunity will present itself when sufficient traders think that prices are now undervalued and enter the market as buyers. As the prices rise, the former support level will be seen as a selling opportunity and so it now becomes a resistance.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12801.2 -0.47% 4.78% Down
NASDAQ 2903.88 -0.06% 11.47% Up
S&P 500 1342.64 -0.17% 6.76% Down
Russell 2000 813.33 -2.14% 9.77% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Wilshire 5000
0 %
Russell 2000
9.22 %
Russell 2000
16.61 %
NASDAQ Composite
11.47 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Personal Computers Toy & Hobby Stores Toy & Hobby Stores Specialty Eateries
 Most Improved Industry (by change in technical rank2)
Computers Wholesale
+ 65
Photographic Equipment & Supplies
+ 94
Major Airlines
+ 169
Surety & Title Insurance
+ 207
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 16 24.85 5.57% -0.6%
Last Week 82 24.38 7.61% 2.38%
13 Weeks 331 26.15 12.06%
5.88%
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 FLML Flamel Technologies S.A. (ADR) 127
Top Technical SOA Solutia Inc.  67
Top Fundamental GOLD Randgold Resources Ltd. (ADR) 39
Top Tech. & Fund. ECHO Echo Global Logistics, Inc.
64
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 AKRX Akorn, Inc.  84
Top Technical NWL Newell Rubbermaid Inc.  55
Top Fundamental AKRX Akorn, Inc.  84
Top Tech. & Fund. AKRX Akorn, Inc.  84
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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