Weekly Newsletter 10/25/13
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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  

NASDAQ Comp.

Volume was above average each day this week showing improving confidence in the upward market trends. Volumes also improved in the latter four days delivering three accumulation days for the NASDAQ Composite (an accumulation day is when a stock or index rises on increasing volume). The result was a new 13 year high for the NASDAQ which has seen a 30% rise year to date. My reading of the NASDAQ chart says that we should expect a 2-3% correction over the next two weeks.

Top breakout for the week was Pacer International (PACR) which broke out of a shallow CwH pattern on Friday and closed 12.5% above its breakout price.

If you think that the $13billion settlement with J.P. Morgan is excessive, consider that they had reserves of $28billion against liabilities arising from the acquisition of WaMu and Bear Sterns. And for a brilliant take-down of CNBC and Fox News' analysts watch Nightmare on Wall Street. This was so good I couldn't resist sharing it!
 New Features this Week Additional Value that we added this week

Bug Fix

Thanks to the efforts of a Trial subscriber I corrected a bug in the Tradewatch Backtest program this week. To understand the bug, you need to know that we adjust historical prices for splits and dividends so that price and volume charts are consistent.  The bug arose out of the original breakout price not being adjusted for historical price corrections resulting from splits and distributions. (See more below).

For example, suppose the original breakout price for a stock was $10 and there was a subsequent 2 for 1 split. The adjusted BoP should now be $5. Suppose now that the stock rises and is sold after a 50% gain for an adjusted price of $7.50. The backtest was comparing the sell price of $7.50 to the unadjusted BoP of $10 and recording a $25% loss. This has now been corrected so the original BoP is adjusted by the appropriate split factor.

Additionally, the reports of trades filed/not filled now report results only for the year -to-date.
This Week's Top Tip Tips for getting the most out of our site

Should you Consider TradeWatch?


Tradewatch is designed for subscribers who cannot follow the market in real time. I developed it in 2006 because I live in Hawaii where the market opens at 3:30 am in summer and 4:30 am in winter. My goal was to establish a set of criteria for selecting stocks on which I could place buy and sell orders the previous evening, and have a reasonable expectation that on average these stocks would out perform the market averages.

While TradeWatch performed well at first, it failed to deliver good results in the long bear market that began in 2007 and I lost interest in it. The result was that I didn't pay as much attention to maintaining the product as I should, which led to my failing to notice the bug which was fixed this week.

Looking at results for this year, though, I see that Tradewatch is again delivering good results. If you are in a situation where you cannot trade real time, then I suggest that both the "Buy at Open" and "Buy on Breakout" watchlists deserve your attention.

For example, the "Buy at Open" strategy has delivered stocks that have averaged a 28% gain for the year to date, and the "Buy on Breakout" strategy, which is a little more conservative, delivered average gains of 22%. When you consider that these trades are open only for a few days, then the results of compounding can be significant.

For example, a backtest of a 4 position "Buy at Open" portfolio since the start of the year, returned 68%.

Tradewatch Backtest

You can test various scenarios using our Tradewatch History Portfolio Simulation tool on the Tradewatch page.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 15570.3 1.11% 18.82% Up
NASDAQ 3943.36 0.74% 30.6% Up
S&P 500 1759.77 0.88% 23.39% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
1.11 %
NASDAQ Composite
9.14 %
NASDAQ Composite
20.25 %
NASDAQ Composite
30.6 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Publishing - Newspapers Publishing - Newspapers Toy & Hobby Stores Electronics Stores
 Most Improved Industry (by change in technical rank2)
Lodging
+ 49
Dairy Products
+ 168
Photographic Equipment & Supplies
+ 196
Personal Computers
+ 175
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 6 10.23 7.58% 3.39%
Last Week 13 10.23 16.35% 6.85%
13 Weeks 132 10.77 19.5%
8.24%
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 PZZI Pizza Inn, Inc. 106
Top Technical PZZI Pizza Inn, Inc. 106
Top Fundamental AFSI Amtrust Financial Services, Inc. 35
Top Tech. & Fund. BOFI BofI Holding, Inc. 41
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 WETF WisdomTree Investments, Inc. 62
Top Technical ATK Alliant Techsystems Inc. 28
Top Fundamental WETF WisdomTree Investments, Inc. 62
Top Tech. & Fund. WETF WisdomTree Investments, Inc. 62
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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