Weekly Newsletter 06/08/12
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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 rallied by a healthy 4% this week after finding support at the 200 dma level and all the major indexes are now back in the black for the year. Our trend model for the NASDAQ remains down, however, due to the below average and falling volume. Thursday's pullback as the index approached the May 29 high is an indication that the index may struggle to move higher in the short 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

Subscriber Strategy Analysis

I was asked to analyse the following strategy:

1. Buy MTC stocks on breakout if BoP is above 8 day exponential moving average (EMA) and 21 day EMA.
2. Only buy if NASDAQ in uptrend
3. Sell at next open when 8 day EMA is lower than previous day

Since one of the constraints was that the NASDAQ be in an uptrend, I chose to only analyse breakouts since 2009 and only those from a CwH pattern. I also found that there were only a handful of stocks that met all the criteria so I instead chose to use stocks with a Relative Strength Rank (RS) >= 92 (the most important of the MTC requirements).

There were 387 breakouts that met the criteria. I quickly found that applying the sell when 8 ema is lower than the previous day was open to interpretation - for example, by how much less? I chose to round to 1 decimal place although in retrospect it would have been better to apply a % change requirement. If there is enough interest I will repeat the analysis for different tolerances.

The results are superficially quite promising. A scatter plot of all the returns vs the number of days that the position was held follows. You will see that the average return is 3.9% but that most losses occur in the first 20 days. This suggests that the profit margin can be improved if positions held for more than 20 days can be strengthened for a modest premium over the breakout price.

Scatter Plot

A histogram shows the number of breakouts in each 5% profit group:

Histogram

While the results show a modest profit on average, they assume that one opens the position at exactly the breakout price and an overnight sell order would execute at the next day's opening price. In practice I suspect that slippage would eat into the potential profit by 1-2%.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 12554.2 3.59% 2.76% Up
NASDAQ 2858.42 4.04% 9.72% Down
S&P 500 1325.66 3.73% 5.41% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Russell 2000
4.31 %
Dow Jones
-4.35 %
NASDAQ Composite
7.99 %
NASDAQ Composite
9.72 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Recreational Vehicles Recreational Vehicles Building Materials Wholesale Recreational Vehicles
 Most Improved Industry (by change in technical rank2)
Dairy Products
+ 43
Diagnostic Substances
+ 49
Dairy Products
+ 157
Building Materials Wholesale
+ 172
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 18 12.62 4.01% 2.66%
Last Week 10 12.69 5.73% 0.39%
13 Weeks 203 14 5.88%
-3.59%
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 AHS AMN Healthcare Services, Inc. 95
Top Technical AHS AMN Healthcare Services, Inc. 95
Top Fundamental LOPE Grand Canyon Education Inc 56
Top Tech. & Fund. LOPE Grand Canyon Education Inc 56
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 WWWW Web.com Group, Inc. 73
Top Technical CSU Capital Senior Living Corporation 68
Top Fundamental ECPG Encore Capital Group, Inc. 45
Top Tech. & Fund. BGS B&G Foods, Inc. 37
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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