|Weekly Newsletter 04/13/12|
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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.
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.
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.
Again, for comparison purposes, lets apply the same analysis to all breakouts if you buy at the next open.
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|
|Weekly Breakout Report||How confirmed breakouts performed this week|
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|
|Top Second Chances||Stocks that broke out this week and are still in buyable range|
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