Weekly Newsletter 01/13/13
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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 moved above resistance on Thursday. The mood was moderately bullish as the first week of earnings were slightly better than anticipated but investors are accustomed to seeing companies manage expectations in order to deliver 'surprises' so the upward move was muted with volumes holding at around the 50 day average. Earnings from several of the big banks are due this week (Wednesday and Thursday). Their earnings projections will be an indicator of the extent to which they expect underlying demand to improve this year, so bullish projections will give a lift to the market. 


The number of breakouts fell in comparison to last week's exceptional level but was above the 13 week average. The average gain was just over 3% at week's end, well above the NASDAQ's overall gain of just 0.8%. The best performer was Dalek Holdings (DK) which broke out on Thursday with a modest 1% gain over breakout price which the rocket up a further 10% on Friday on almost 5 times average daily volume. Dalek is in the oil and gas sector which is expected to do well as the country satisfies more of its energy needs from domestic oil and gas resources.
 New Features this Week Additional Value that we added this week

We resolved a bug that occasionally caused our intraday charts of the major indexes to stall in mid-session.

This Week's Top Tip Tips for getting the most out of our site

Future Earnings more Important than Earnings Acceleration

Our analysis over the years has shown that earnings, despite being an important factor in CAN SLIM analysis (the C for Current earnings, and the A for earnings acceleration), has only a weak correlation with future stock performance. A case in point is what happened to Wells Fargo (WFC) on Friday. Although the bank announced a 24% increase in net income, and a 7% rise in revenue year-over-year (earnings acceleration) the stock closed down 1% by the close. The drop was due to analysts' focus on the 2% decline in net interest which is perceived as being detrimental to future earnings.

To illustrate my point you can try a simple test in our Cup-with Handle Backtest Tool. Run the test with CEF2 (our measure of earnings acceleration) set to its maximum value of 1. and the12 gain is 24.6%.

Now run the test in our Zacks Backtest Tool and the gain rises to 38%. The Zacks ranking model assess stocks based on future earnings potential. This shows that future earnings rather than previous earnings are a significantly more important factor.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 13488.4 0.4% 2.93% Up
NASDAQ 3125.63 0.77% 3.51% Up
S&P 500 1472.05 0.38% 3.22% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
0.77 %
Russell 2000
7.01 %
Russell 2000
9.96 %
Russell 2000
3.7 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Building Materials Wholesale Cement Lumber - Wood Production Lumber - Wood Production
 Most Improved Industry (by change in technical rank2)
Broadcasting - Radio
+ 37
+ 70
Music & Video Stores
+ 145
Foreign Money Center Banks
+ 181
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 23 19.23 4.42% 3.05%
Last Week 73 17.92 5.79% 4.59%
13 Weeks 325 19.69 7.78%
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 OREX Orexigen Therapeutics, Inc. 116
Top Technical OREX Orexigen Therapeutics, Inc. 116
Top Fundamental SLCA U.S. Silica Holdings Inc 68
Top Tech. & Fund. SLCA U.S. Silica Holdings Inc 68
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 ADY Feihe International Inc 91
Top Technical AZZ AZZ Incorporated 35
Top Fundamental AZZ AZZ Incorporated 35
Top Tech. & Fund. AZZ AZZ Incorporated 35
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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