Weekly Newsletter 09/27/13
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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 held up quite well this week despite the political uncertainty, as the chart shows. The index dropped just 0.2 percent while the Dow and S&P 500 each lost more than 1%. The upward trend, as measured by the slope of a 20 day moving linear regression, remains positive although the trend is weakening as the slope chart shows. As I write this, on Saturday afternoon in Hawaii, it appears almost certain that there will be some form of government shutdown beginning on Tuesday, so we can anticipate that Monday will be a fairly strong down day which could set the market direction for several days to come.

NASADQ Comp.

As a result of the NASDAQ's relative strength, there were quite a few more breakouts than I expected when I issued last week's warning  to stay on the sidelines until votes in the Congress are finalized. !4 breakouts for the week was considerably higher than the recent average and an average gain of almost 6% until Friday's close was remarkably healthy. Pharmaceutical company Cempra (CEMP) was the strongest performer with a 17% gain to Friday's close.
 New Features this Week Additional Value that we added this week

There were no new features this week.
This Week's Top Tip Tips for getting the most out of our site

Trend Recognition


This week, a subscriber asked me why our trend signals remain "up" even though  the markets are falling.

I answered that the NASDAQ is not clearly in a down trend, as can be seen from the chart above, and that volumes, at least until Friday, for the S&P 500 and DJI were weak, so a downtrend for those indexes was not clearly established either. Trend changes are difficult to identify with certainty, but must always be accompanied by above average volume.

If we were able to accurately identify changes in trend then we would  have an incredibly powerful and profitable  tool. We would buy when the trend changes to up and sell when it changes to down. We'd then go short and cover when the trend again changes upward.

The challenge we face is, how long do we wait for the trend to be established? If we act too soon, we risk being whipsawed when the trend reverses on us before we have turned a profit. If we act too late, our potential profit is diminished.

Now, I said above that a trend change must always be accompanied by above average volume, which begs the question, what is above average volume? What period should we use over which to determine the average? It's the same problem as how long should we wait to establish the trend. There is again no easy answer to this question.

What we do know, is that once that above average volume has worked its magic, price will respond, so by following price alone perhaps we can ignore the volume question altogether. This is the rationale behind trend recognition systems, such as MACD, that attempt to detect trend changes by looking at divergence between moving averages of different lengths. these systems can be successful when prices move strongly in one direction or another but fail during weakly trending or laterally moving prices as they lead to whipsawing and overall losses.

Our new Trend Reversal algorithm uses fractal geometry to overcome these disadvantages and is the basis of when we determine a trend has changed in one of the major indexes. The system uses a fractal line and a moving average to detect trend changes. An advantage of the fractal line is that it responds slowly when prices are flat, but quickly as pricees start to trend. It will never be 100% accurate, but it should swing the odds slightly in our favor. You can read more and test the system for your self at our Evaluate >Analytical Tools > Trend Reversal Signals menu choice.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 15258.2 -1.25% 16.44% Up
NASDAQ 3781.59 0.18% 25.24% Up
S&P 500 1691.75 -1.06% 18.62% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
0.18 %
NASDAQ Composite
11.12 %
NASDAQ Composite
16.75 %
NASDAQ Composite
25.24 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Electronics Stores Electronics Stores Toy & Hobby Stores Electronics Stores
 Most Improved Industry (by change in technical rank2)
Wholesale - Other
+ 205
Wholesale - Other
+ 197
Medical Practitioners
+ 182
Medical Practitioners
+ 188
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 8.85 8.36% 5.93%
Last Week 16 8.15 8.62% 3.54%
13 Weeks 107 9.38 19.79%
10.97%
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 IMMU Immunomedics, Inc. 114
Top Technical IMMU Immunomedics, Inc. 114
Top Fundamental AMG Affiliated Managers Group, Inc. 25
Top Tech. & Fund. ULTI The Ultimate Software Group, Inc. 24
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 RM Regional Management Corp 69
Top Technical WAL Western Alliance Bancorporation 57
Top Fundamental SYNA Synaptics, Incorporated 38
Top Tech. & Fund. SYNA Synaptics, Incorporated 38
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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