Weekly Newsletter 04/13/12
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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 fell through the medium term support line (orange) on Monday  but found support at the 50 day moving average level on Tuesday.  The orange line is now resistance and breakout above it would signal the end of the current correction. Adversely, a breakdown below the 50 day average would indicate a possible move down to 2900, the previous support level.
NASDAQ Composite

Our market trend for NASDAQ and small cap stocks continues to point upwards but until the current short term correction is resolved, patience is advised.
 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 2

Last week, at the request of a subscriber we analyzed the performance of 'second chance' breakouts after 1, 2, 3 and 4 weeks. You will recall that I defined 'second chances' as those stocks that broke out  since 2007 and had pulled back below their breakout price at the end of the week in which they broke out. The objective was to analyze the performance of these stocks if they were bought at the open on the following Monday (or next session).

The performance of these stocks was poor: 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.

However, this was the performance for all breakouts and this week we look at those second chances that had a Relative Strength Rank (RS) >= 92 (our favored filter). Chart 1 shows the percentage gain of these stocks at the end of weeks 1, 2, 3 and 4 grouped in 5% ranges from -25% to greater than +25%. For example, the chart shows that after 1 week, 30% of stocks were still below their BoP in the range 0 -to -5%, while 29% were between 0 and +5%. This table shows the percentage of stocks that were positive versus those that were negative after 1- 4 weeks.

Second Chances with RS  Rank >= 92

Winners Losers
Week 1 52.8% 47.2%
Week 2 50.7% 49.3%
Week 3 49.5% 50.5%
Week 4 48.0% 52.0%


Second Chances RS >= 92
Chart 1

We conclude, as before, that second chances do not make attractive investments when sold on the 1,2,3 or 4 week anniversary of purchase.

For comparison purposes, lets apply the same kind of analysis to all breakouts if they were bought at the alert price. We find that stocks that have a positive gain outnumber the losers by almost 2:1.

Buy on Alert performance

Winners Losers
Week 1 65.3% 34.7%
Week 2 61.8% 38.2%
Week 3 61.0% 39.0%
Week 4 62.2% 37.8%

All breakouts buy on alert
Chart 2

Again, for comparison purposes, lets apply the same analysis to all breakouts if you buy at the next open.

Tables
Buy at Next Open Performance

Winners Losers
Week 1 53.3% 46.7%
Week 2 52.0% 48.0%
Week 3 52.7% 47.3%
Week 4 53.5% 46.5%

All breakouts Buy at next Open
Chart 3

Conclusion

So called 'second chances' have liitle value as investment vehicles when bought on the Monday following a week in which they closed below their breakout price and were then sold after exactly 1, 2, 3 or 4 weeks.

For comparison, if you can buy on alert, and close to the alert price, you have a 2:1 chance that your position will net you a profit in the next 4 weeks.

If you buy at the next day's open, then your chances of having a winning stock fall to 5:4.

Important Note: this analysis was done at the request of a subscriber and is not representative of how we suggest you use our data. The analysis covers the period 1/1/2007 to now, and includes one of the most severe bear markets in history and also a strong bull.  These results are therefore not typical of what you might achieve if you used additional criteria, such as our market signals, to determine when to open or close a position. The analysis also assumes selling after fixed periods of 1, 2, 3 and 4 weeks which is an unlikely trading strategy.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12849.6 5.17% 5.17% Down
NASDAQ 3011.33 15.59% 15.59% Up
S&P 500 1370.26 8.96% 8.96% Down
Russell 2000 796.29 7.47% 7.47% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-0.62 %
NASDAQ Composite
11.09 %
NASDAQ Composite
12.87 %
NASDAQ Composite
15.59 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Home Improvement Stores Auto Parts Stores Personal Computers Personal Computers
 Most Improved Industry (by change in technical rank2)
Processing Systems & Products
+ 106
Catalog & Mail Order Houses
+ 101
Photographic Equipment & Supplies
+ 150
Building Materials Wholesale
+ 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 8 24.38 117.71% -3.38%
Last Week 13 26 4.75% -0.52%
13 Weeks 251 26.38 20.08%
-0.04%
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 ARAY Accuray Incorporated 99
Top Technical ARAY Accuray Incorporated 99
Top Fundamental HF HFF, Inc. 62
Top Tech. & Fund. HF HFF, Inc. 62
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 BTA BlackRock LT Municipal Advantage Trust 65
Top Technical HGIC Harleysville Group Inc. 28
Top Fundamental AMSF Amerisafe, Inc. 58
Top Tech. & Fund. AMSF Amerisafe, Inc. 58
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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