Weekly Newsletter 04/06/12
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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  

The NASDAQ Composite gave up 0.4% this week but still fared much better than the other major indexes. Regular readers know we have been expecting a period of consolidation and losses so far have been well contained, despite four distribution days in the last seven sessions. We still consider a target of 3200 to be likely before a major correction occurs but the index could test support at 3050 in the near term.

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 site

Performance of 'Second Chance' Breakouts - Part 1

Each week I publish the top 'second chance' stocks, being those stocks that broke out during the week, that rate highly by technical and fundamental criteria but have pulled back below their breakout price on the Friday before newsletter publication.

Following my offer last week to undertake backtesting of subscribers' suggested strategies, I was asked to look at the performance of these "second chances" on the assumption that they are bought at the open of the next session.

This isn't exactly possible because I don't record the symbols published as second chances each week. Instead, I've looked at all second chances defined by those stocks that broke out  since 2007 and were below their breakout price at the end of the week in which they broke out. This includes all second chances, not just those with a high technical and/or fundamental score.

The analysis assumes buying each second chance at the open of the next (usually Monday) session and then looking at the percentage gain until the close at the end of the next four weeks.

The results for all second chances are hardly encouraging. The chart below shows the percentage gain of the stocks at the end of weeks 1, 2, 3 and 4 of stocks grouped in 5% ranges from -25% to greater than +25%. For example, the chart shows that after 1 week, 9% of stocks had gained between 0 and 5% and 3.7% had gained between 5 and 10%.

Overall, after 1 week, just 54.4% of stocks were in the black. After 2 weeks, the number in the black fell to 52.2% and by week 4 only 50.8% were in the black.

We can conclude from this that buying all (or a  random selection)  of second chances is not a good strategy. Next week, we'll look at how being more selective by buying only more highly ranked second chances works out.

Second Chance Performance
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 13060.1 -1.15% 6.9% Down
NASDAQ 3080.5 -0.36% 18.25% Up
S&P 500 1398.08 -0.74% 11.17% Down
Russell 2000 818.18 -1.46% 10.43% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
S&P 500
-0.37 %
NASDAQ Composite
15.38 %
NASDAQ Composite
22.88 %
NASDAQ Composite
18.25 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Sporting Goods Auto Parts Stores Personal Computers Personal Computers
 Most Improved Industry (by change in technical rank2)
Major Airlines
+ 75
Movie Production - Theaters
+ 109
Photographic Equipment & Supplies
+ 145
Building Materials Wholesale
+ 198
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 11 26 4.65% 1.37%
Last Week 15 26.62 4.65% -1.42%
13 Weeks 288 27.69 12.34%
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 NCT Newcastle Investment Corp. 110
Top Technical NCT Newcastle Investment Corp. 110
Top Fundamental FTK Flotek Industries, Inc. 72
Top Tech. & Fund. FTK Flotek Industries, Inc. 72
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 BIOS BioScrip Inc. 99
Top Technical TK Teekay Corporation 34
Top Fundamental GPI Group 1 Automotive, Inc. 43
Top Tech. & Fund. GPI Group 1 Automotive, Inc. 43
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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