Weekly Newsletter 06/23/13
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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  

It has been clear for some time that any hint at withdrawal of QE by Fed Chairman Bernanke would send a shudder through the markets, Thursday's gap down was unquestionably an overreaction, as there is still some time to go before the punchbowl is taken away. The strong recovery, at least for the S&P 500 and DJI, on Friday saw a return to sanity. The strong surge off the day's bottom even caused our market signal for the S&P 500 to turn positive. But with both trend indicators for the DJI and  NASDAQ still pointing down, further caution is necessary. At times like these, caution is self-imposed, because the number of breakouts drops dramatically. There were only four this week and gains were slim.

I expect the NASDAQ will recover further and trade between 3400 and 3500 in the short term.

 New Features this Week Additional Value that we added this week

Our Trend Reversal Signals for individual stocks makes a return this week. After extensive research and considerable back testing against the old algorithm, I have a new version in place based on Fractal geometry.

As before, you can access it from Evaluate > Analytical Tools > Stock Reversal Signals.
This Week's Top Tip Tips for getting the most out of our site

New Trend Reversal Signals

Our former algorithm was based on oversold and undersold indicators for the RSI stochastic indicator with the accumulation/distribution indicator for confirmation. A weakness of all indicators of this type is that although they work quite well when the symbol under study is trending, they give several false signals when the stock is moving predominately sideways. I had attempted to allow for this by modifying the periods used for the indicators based on the short term standard deviation but there were still too many false signals.

The new algorithm is based on fractal geometry.  It has  been observed that stock price movements can be modeled  using fractal techniques and on the Trend Reversal Signals page I link to the original article by John Ehrlers describing the methodology.

The new Trend Reversal Signal tool uses a "Fractal Moving Overage" crossover with a 40 day simple moving average to generate buy and sell signals. The tool also allows you to modify the  fractal "window" and SMA period so you can experiment with your own settings. This image shows the reversal signals for AAPL over the last twelve months and shows that using these signals one would have been profitable both on the long and short side.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 14799.4 -1.8% 12.94% Down
NASDAQ 3357.25 -1.94% 11.19% Down
S&P 500 1592.43 -2.11% 11.66% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-1.8 %
NASDAQ Composite
1.98 %
Dow Jones
12.19 %
Dow Jones
12.94 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Music & Video Stores Music & Video Stores Electronics Stores Music & Video Stores
 Most Improved Industry (by change in technical rank2)
Office Supplies
+ 137
Office Supplies
+ 153
Office Supplies
+ 201
Toy & Hobby Stores
+ 213
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 4 11.23 3.56% 2.23%
Last Week 12 11.92 6.66% -1.04%
13 Weeks 158 12.23 12.05%
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 CVTI Covenant Transportation Group, Inc. 104
Top Technical CVTI Covenant Transportation Group, Inc. 104
Top Fundamental INVN InvenSense Inc 56
Top Tech. & Fund. INVN InvenSense 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
Company Name
Expected Gain1
Best Overall IN Intermec Inc. 48
Top Technical SZYM Solazyme Inc 48
Top Fundamental IN Intermec Inc. 48
Top Tech. & Fund. IN Intermec 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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