Weekly Newsletter 02/10/13
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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 outperformed the other major indexes this week. The index tested resistance on Friday at its September high but fell back to close 2 points lower. I continue to expect the index to trade in a range between 3170 and 3196 unless sequestration is modified or delayed, or that the market thinks it will be. I have also taken note of John Mauldin's comment in his Outside the Box commentary this week:
"I am neither a market timer nor the son of a market timer, but I know a lot of these guys. And many whom I pay attention to are flashing major warning signals this week. If I were long this market, I would lay in hedges on what I did not want to sell and put in tight stops on the rest. Maybe a correction will be a rest stop on the way to higher numbers. Short term, emotions can drive markets to what, in retrospect a few years later, seems an obvious extreme, either to the upside or downside."


The number of confirmed breakouts fell to almost half the recent weekly average but still delivered a healthy 3.4% average gain by Friday's close.
 New Features this Week Additional Value that we added this week

EPS Current Estimate

The benefits of our EPS trend tool are now part of our watchlists displays with the estimate for the current quarter now being displayed for each symbol on our watchlists.

To make way for this, we removed the MTC column which we no longer recommend as a useful indicator.

Also, the EPS current estimate can now be filtered for and alerts can be selected by this filter also.

At this time, we can't give any guidance as to what, if any, filter value should be used for EPS as we have no history of performance after breakout of stocks with this metric.

CwH Backtest Tool

We added a "slippage" field to the CwH backtest tool. Currently, the breakout price is used as the buy price when the 'Buy on Alert' scenario is run. If used, the slippage value is added to the breakout price to represent a more realistic buy price. The slippage price is expressed in cents. So, for example, if a slippage value of 50 is used, the buy price will be Bop + 0.50.

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

Recommended Buy Criteria

We ran a simulation of the CwH Backtest tool to seek the most profitable buy criteria this year using the Buy on Alert strategy. We will run the simulation for the Buy at Open strategy next week.

The simulation was done for 4 positions (meaning that 1/4 of available cash was used for each buy) using all combinations of criteria in the following ranges:
  • BoP Stop Loss %: 5 to 10 in 1% increments
  • Trailing Stop: 2 to 8 in 1% increments
  • Min. Vol. to Adv Ratio %: 1.25 to 2 in 0.25% increments
  • Confirmation Vol. Ratio %: 1.25 to 2.5 in 0.25% increments
  • Top Industry percentile: 25 to 50 in 1 percentile increments
Other criteria were held at their default values: RS 92, minimum BoP:$6, Minimum ADV 100,000, use Market Trend, Target Gain 100%.

After ranking all the results by Gain/Loss %, the winning values were:
  • BoP Stop Loss %: 5%
  • Trailing Stop: 7%
  • Min. Vol. to Adv Ratio %: 1.25
  • Confirmation Vol. Ratio %: 1.25
  • Top Industry percentile: 25

You can replicate these results yourself, using the values described above. However, there are a couple of caveats to point out about these results:

  1. These values gave a return since January 1, of 4.53%. Better than the S&P's 3.8% but less than the NASDAQ's 6.8%. This disappointing result is due to using the 4 position option. Because less capital is applied to each position, if we are not fully invested then our capital is not being fully utilized. In fact, the maximum simultaneous positions filled was three and our average capital utilization was only 11.7%. Contrast that with a 1 position strategy, which gave a 16% return (although we were still only fully invested 21% of the time.
  2. Note the low average volume requirements. This is surely due to the strongly rising market since January 1. The strength of the breakout apparently didn't matter as all breakouts did well.

In view of our skepticism that the trend since January can continue, we do not recommend these value for your buy/sell criteria. Instead, we have run the same simulations going back to the market bottom of June 1, 2012 which includes two uptrends and one steep downturn. This should provide a more reliable outcome for a turbulent market.

  • BoP Stop Loss %: 5%
  • Trailing Stop: 7%
  • Min. Vol. to Adv Ratio %: 1.25
  • Confirmation Vol. Ratio %: 2
  • Top Industry percentile: 40

These values are now the defaults in the CwH backtest tool.

The 4 position strategy since June 1, 2012 provided an 46% gain. During that period two breakouts contributed outstanding gains: OCN bought at 16.83 on 7/2012 gained 100%  and was sold due to the target gain 100% limit (it would have gained 113% before being sold on a trailing stop) and TS gained 45%.

Using these parameters with a 1 position portfolio returned 66.6%.

1 postion results

1 position chart

One Last Caveat

These results were obtained by optimizing the selection criteria over historical data. While the period of the backtest was representative of recent market conditions, the exact sequence of trades represented will never be repeated and so future results using  these criteria, could be better or worse.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 13993 -0.12% 6.78% Up
NASDAQ 3193.87 0.46% 5.77% Up
S&P 500 1517.93 0.31% 6.43% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
0.46 %
Russell 2000
14.92 %
Russell 2000
13.99 %
Russell 2000
7.57 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Building Materials Wholesale Building Materials Wholesale Lumber - Wood Production Lumber - Wood Production
 Most Improved Industry (by change in technical rank2)
Computer Based Systems
+ 122
Computer Based Systems
+ 122
Computer Based Systems
+ 152
Music & Video Stores
+ 184
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 10 19.62 5.12% 3.36%
Last Week 21 19.85 4.05% 0.93%
13 Weeks 283 20.62 10.5%
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 SNSS Sunesis Pharmaceuticals, Inc. 112
Top Technical SNSS Sunesis Pharmaceuticals, Inc. 112
Top Fundamental KORS Michael Kors Holdings Ltd 29
Top Tech. & Fund. KORS Michael Kors Holdings Ltd 29
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 SWC Stillwater Mining Company 65
Top Technical AGO Assured Guaranty Ltd. 35
Top Fundamental LOPE Grand Canyon Education Inc 48
Top Tech. & Fund. LOPE Grand Canyon Education Inc 48
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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