Weekly Newsletter 10/05/12
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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  

Although the NASDAQ Composite trended higher during the week and closed with a small gain, Friday's profit taking ahead of earnings season left our trend indicator pointing down, along with that for the S&P 500. The NASDAQ is in an ascending triangle pattern but volume remains below average indicating dwindling support for an upside breakout.

NASDAQ composite

Our backtesting shows that breakouts perform less successfully when the NASDAQ trend indicator is down, so we continue suggest caution until the trend reverses.

 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

MTC Breakout Returns Disappoint - New Recommendation

Early in 2010 we introduced our "Meets Target Criteria" (MTC) strategy. At the time backtesting of the strategy showed significantly better returns for MTC breakouts than all CwH breakouts. (see Recommendations for Selecting High Performance Breakouts 

As a reminder, our MTC strategy suggests buying CwH breakouts when breakout day volume reaches 2.25 times average daily volume for CwH breakouts that meet the MTC criteria on breakout day. The MTC criteria are:
  • Average daily volume >= 100,000
  • Breakout price >= $6
  • Relative Strength (RS) Rank >= 92
  • CANTATA Fundamental Criterion #2 (CEF2) >= 0.6
  • CANTATA Fundamental Criterion #3 (CEF3) >= 0.6
The strategy also suggests:
  • Do not open a new position if our NASDAQ Market trend signal is down
  • Sell if the price drops 8% or more below the breakout price (BoP Stop Loss)
  • Sell if the price drops by 8% or more from the highest intra-day price to date
  • Take a profit at 25% gain

However, over the last year our MTC breakouts have underperformed compared to all CwH breakouts.
Our CwH Backtest tool (accessed from Evaluate > Analytical Tools) shows returns for MTC breakouts yielded only 19.4% while all CwH breakouts yielded 48.3% (using the default backtest parameters).

We have always found that Relative Strength Rank is the most important determinant of future performance and running the backtest on all CwH breakouts with a filter on those with an RS Rank equal to or greater than 92 lifts the backtest's 12 month return to 67.7%.

I therefore suggest ignoring the MTC indicator and instead limit trading to stocks with an RS Rank >= 92.

12 month yield RS Rank >= 92



 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 13610.2 1.29% 11.4% Up
NASDAQ 3136.19 0.64% 20.38% Down
S&P 500 1460.93 1.41% 16.17% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
S&P 500
1.41 %
S&P 500
7.84 %
S&P 500
5.7 %
NASDAQ Composite
20.38 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Air Services - Other Air Services - Other Lumber - Wood Production Building Materials Wholesale
 Most Improved Industry (by change in technical rank2)
Regional Airlines
+ 43
Tobacco Products - Other
+ 73
Silver
+ 171
Confectioners
+ 189
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 20 20.15 4.8% 1.5%
Last Week 25 19.77 4.21% 1.68%
13 Weeks 293 21.54 11.64%
6.62%
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 ADY Feihe International Inc 117
Top Technical ADY Feihe International Inc 117
Top Fundamental LULU Lululemon Athletica inc. 41
Top Tech. & Fund. LULU Lululemon Athletica inc. 41
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 WAL Western Alliance Bancorporation 83
Top Technical VHS Vanguard Health Systems, Inc. 58
Top Fundamental VHS Vanguard Health Systems, Inc. 58
Top Tech. & Fund. VHS Vanguard Health Systems, 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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