Weekly Newsletter 06/30/13
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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  

A volatile week closed with a rally on Friday supported by a volume level almost twice the recent average. Our trend indicators for the large cap indexes (DJI and S&P 500) are now positive while the NASDAQ indicator is still negative. The NASDAQ closed slightly above its 50 day average on Friday and I expect the trend will reverse soon. Look for the index to trade between its 50 day average and the downward sloping trend line shown on this week's NASDAQ chart. A break above that trend line would be bullish.

NASDAQ Composite

The number of breakouts jumped to 14 this week - more than triple those of last week, and above the recent average. While we generally recommend caution while our NASDAQ trend indicator is down, this may be the time to bend the rule and take a long position or two in anticipation of a likely reversal of trend.
 New Features this Week Additional Value that we added this week

No new features this week. But if you missed some recent newsletters then take a look at:

New Slope Indicator
New individual stock Trend Reversal Signals
This Week's Top Tip Tips for getting the most out of our site

What should be your target gain?

This may seem like a silly question in the light of the oft told adage "let your winners run" but I believe its better to take early profits so you can move on to the next winner.

The fact is, most breakouts don't make big gains before suffering a setback. Once a stock has gained, say 20%, how likely is it that it will make another 20% compared to a new position making 20%? I don't have the exact answer to that but we do have a way to test when you should be satisfied with the gain you have using our CwH backtest tool.

Using the buy and sell criteria recently published for stocks since January 1 this year (see New Strategy Suggestions, I ran the backtest tool with successively increasing target gains. (Setting a target gain forces the backtest tool to sell the stock when that gain is reached. The backtest tool then buys the next breakout to come along.) I ran the backtest for holding just one position and four positions simultaneously. Here are the results.

Target Gain Profit %

1 position 4 positions
10 30.9 13.1
15 44.0 16.0
20 46.1 17.5
25 42.0 16.5
30 42.0 16.5
35 42.0 16.5
40 42.0 16.5

As you can see, the optimum time to sell is when your profit reaches 20%. This causes you to forgo any further, possibly slight gains, in preference to taking a new position with a potentially higher gain. Note that if you go for a target above 25% your gains plateau as you will most likely be stopped out of a position.

If you are wondering why a 4 position strategy is less profitable, it's because only 1/4 of your capital is invested in any one position, but the number of times there are 4 breakouts that meet the buy conditions is rare, so you are rarely fully invested.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 14909.6 0.74% 13.78% Up
NASDAQ 3403.25 1.37% 12.71% Down
S&P 500 1606.28 0.87% 12.63% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
1.37 %
NASDAQ Composite
2.31 %
Dow Jones
15.24 %
Dow Jones
13.78 %
 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)
Home Improvement Stores
+ 155
Home Improvement Stores
+ 155
Semiconductor - Memory Chips
+ 157
Toy & Hobby Stores
+ 211
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 14 11.08 3.23% 2.39%
Last Week 4 11.23 4.49% 2.04%
13 Weeks 156 12.31 12.04%
1.69%
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 ICAD iCAD Inc 102
Top Technical ICAD iCAD Inc 102
Top Fundamental EPM Evolution Petroleum Corp 56
Top Tech. & Fund. EPM Evolution Petroleum Corp 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 SNAK Inventure Foods Inc 86
Top Technical MTDR Matador Resources Co 52
Top Fundamental INVN InvenSense Inc 58
Top Tech. & Fund. INVN InvenSense 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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