Weekly Newsletter 11/08/13
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You are receiving this email because you are or were a BreakoutWatch.com subscriber, or have subscribed to our weekly newsletter. This newsletter summarizes the breakout events of the week and provides additional guidance that does not fit into our daily format. It is published each weekend.
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 continues in consolidation mode with a slight downward bias but nothing to be alarmed about. The S&P 500 is also consolidating while the DJI is moving slowly higher. Our market trend signals all remain positive.

NASDAQ Comp

The number of breakouts  rose to 12 this week with a health average gain of 4.2% by Friday's close. CUNE was the standout with a gain of 24% followed by NTLS, up 13%. It's only fair to mention the disappointments as well and CSUN closed 15 off its breakout price after surging to an intraday high of 15%.

 New Features this Week Additional Value that we added this week

More Squeeze Enhancements

The Squeeze indicator has now been consolidated with momentum to provide a single chart. The image below shows GTN, a current entry on our CwH watchlist.

1. Squeeze Chart

A squeeze occurs when the Bollinger Band is completely enclosed within the Keltner channel, and this is indicated on the lower chart by black bars on the horizontal axis. You will notice that the squeeze is on currently in the handle for three days. The squeeze also occurred three times earlier in the six-month period shown and was each time followed by a healthy rise.

The squeeze indicators are overlayed on a normalized momentum chart. That is to say, that instead of using absolute momentum, momentum values are normalized within the range +/- 1. Positive momentum is represented by blue bars and negative momentum by red bars. A lighter shade of each shows a slight diminution in the momentum direction.

Charts with the squeeze indicator are presently only available from the BoWchart option in the top right hand side of the header., they are not currently available directly from a watchlist, although that will be added soon.

GTN Squeeze

2. Squeeze Indicator on Watchlists


Watchlist stocks that are currently in a squeeze are now shown on each watchlist and the list can also be filtered to show only stocks that are in a squeeze. NB. Alerts can not yet be filtered for the squeeze indicator. The value of this is still to be determined.

current squeeze CwH

3. Squeeze Filter Added to CwH Backtest

You can now do a CwH backtest using the squeeze filter but the filter has only been added to backtest data to the start of 2013.
This Week's Top Tip Tips for getting the most out of our site

Squeeze Interpretation

While the value of the squeeze is still to be determined, it is useful at this stage to define how the squeeze could be used to select long or short candidates.

  1. The squeeze should have been in place for at least three bars(days).
  2. A signal is only given when the squeeze is released. That is to say when the Bollinger Band again moves outside the Keltner Channel. This indicates that volatility has suddenly increased and indicating that  a move is in place.
  3. A long position should only be entered if momentum is increasing and positive
  4. A short position should only be entered if momentum is negative and becoming more so.
As a preliminary investigation to test the proof of concept embodied in these rules., I looked at all stocks that experienced an upward squeeze breakout in June-July this year. I chose this period because it included a minor correction in June and upward move in July. I did not filter for, price, volume or any other characteristic. I then looked for the highest close within 30 days of their breakout date and calculated a net gain percent. This was somewhat crude because I didn't set any stop between the breakout and the max close. I more in-depth evaluation will come when I have more time.

Despite these limitations, the results are encouraging:
  • There were 1020 breakouts.
  • Only 11% failed to improve on their breakout day close.
  • The mean % gain was 9.1%.
  • For comparison, the NASDAQ Composite gained 4.5% June 1 - July 31.
  • The median % gain was 6%.
Squeeze Histogram All

For an example of how these results could be improved by filtering, I ran the same study by select stocks with an RS rank >= 92. Again, there was no filtering by price or volume.

  • There were 138 breakouts.
  • Only 12% failed to improve on their breakout day close.
  • The mean % gain was 12.8% ( a 40% improvement)
  • For comparison, the NASDAQ Composite gained 4.5% June 1 - July 31.
  • The median % gain was 9% (a 50% improvement)
Sques RS >= 92

These results show that further investigation is warranted to find the optimum combination of price, volume, fundamentals and technicals. I envisage a new watchlist of squeeze breakout candidates wil emerge from this work.

 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 15761.8 0.94% 20.28% Up
NASDAQ 3919.23 -0.07% 29.8% Up
S&P 500 1770.61 0.51% 24.15% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
0.94 %
NASDAQ Composite
7.08 %
NASDAQ Composite
14.04 %
NASDAQ Composite
29.8 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Toy & Hobby Stores Toy & Hobby Stores Toy & Hobby Stores Toy & Hobby Stores
 Most Improved Industry (by change in technical rank2)
Medical Practitioners
+ 80
Surety & Title Insurance
+ 83
Photographic Equipment & Supplies
+ 193
Auto Parts Stores
+ 148
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 12 10 9.55% 4.17%
Last Week 8 9.77 11.53% 5.67%
13 Weeks 131 10.54 18.47%
5.04%
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. 101
Top Technical PZZI Pizza Inn, Inc. 101
Top Fundamental AFSI Amtrust Financial Services, Inc. 31
Top Tech. & Fund. HRG Harbinger Group Inc 65
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 XRM Xerium Technologies, Inc. 58
Top Technical XRM Xerium Technologies, Inc. 58
Top Fundamental HURN Huron Consulting Group 39
Top Tech. & Fund. HURN Huron Consulting Group 39
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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