Weekly Newsletter 01/10/14
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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  

I'm back from vacation and looking forward to providing you with many successful and profitable breakouts in 2014. To start the year, I'm introducing a new watchlist which promises to be very profitable called "Squeeze Play". Read more about it below.

Although the major indexes got off to a shaky start, at least the NASDAQ has recovered, and all trend indicators remain positive. This week brought some strong breakouts. In the last two days, we've seen ITMN gain 17.6%, FPRX gain 10% and PRCP gain 14.5%.

NASDAQ Composite

There were several outstanding breakouts over the holiday period. TNXP broke out from an HTF pattern on December 26 and has gained 67%. CCIH has gained 43% since breaking out from a CWH pattern on January 3. Also on January 3, FLML broke out from a CWH and has since gained 30%.
 New Features this Week Additional Value that we added this week

Squeeze Play

We have added a new watchlist of stocks that forming the right side of a cup and are also in a squeeze.  We call the new watchlist "Squeeze Play" and it is accessed from the Mine for Candidates > Long Positions > Squeeze Play menu choice. The watchlist is described in more detail below.

Intraday Charts

Intraday charts on any stock are now available when you select a BoWChart from the top right hand corner of the page. After the main chart loads, there is an intraday button in the top right of the chart window.

intraday button
This Week's Top Tip Tips for getting the most out of our site

What is a Squeeze

A "squeeze" occurs when the volatility of a stock falls to below its recent levels. A fall in volatility usually means that the stock is in a period of consolidation or trending in a narrow range. When that period ends normal volatility will return resulting in a breakout to the upside or downside.

We detect a "squeeze" when the 2 standard deviation Bollinger Band (BB) narrows to within the Keltner Channel (KC). Bollinger Bands are very susceptible to volatility changes while Keltner Channels are a smoother, trend following, indicator. Consequently, the narrowing of the BB to within the KC gives us a convenient means of algorithmically recognizing a drop in volatility.

While the BB are within the KC, we say the "squeeze is on". For trading purposes, we are interested in the moment when the squeeze comes off, meaning that the upper and lower BB move outside the KC again, which signals a breakout. Of course, the breakout can be to the upside or downside, but for our Squeeze watchlist we are interested only in breakouts to the upside.

A squeeze can occur while a stock is trending up or down. For our squeeze watchlist, we are only concerned with stocks trending up.

This graphic shows four possible situations in which a squeeze can occur and then come off. In scenarios A, B and C, CRAY would not have appeared on the SQZ watchlist because it was not ascending the right side of a cup, nevertheless A, B and C illustrate the circumstances under which a squeeze can occur. In scenario D, CRAY would have been on the watchlist and an alert would have been issued.

Selecting Stocks for Our Squeeze Watchlist

When we select stocks for our cup-with-Handle (CwH), Double Bottom (DB) or Head and Shoulders Bottom (HSB) patterns, we first look for stocks that have formed  the left side of a cup and are starting to ascend the right side. This behavior is common to all three patterns and we place these stocks on an internal watchlist we call Basewatch. To select stocks  for the Squeeze (SQZ) watchlist, our algorithms examine  each stock on Basewatch to determine if the squeeze is on for each stock. To remove the likelihood that the stock could breakdown from the squeeze we also look at the momentum of the stock and the slope of the momentum curve. If both momentum and the  slope of the momentum curve are positive, then these stocks go on the SQZ watchlist.

CRAY Squeeze

Determining Breakout Price

For the squeeze to come off and give a buy signal, the upper BB value must be above the upper KC
value. So while in a squeeze we can calculate the price at which the stock must close at the next session to lift the upper BB above the upper KC. This price now becomes the breakout price.

Squeeze Alerts

As with our other watchlists, we monitor the real-time price during the next session and issue an alert if the breakout price is reached.
 
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 16437.1 -0.2% -0.84% Up
NASDAQ 4174.67 1.03% -0.05% Up
S&P 500 1842.37 0.6% -0.32% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
1.03 %
NASDAQ Composite
10.1 %
NASDAQ Composite
15.96 %
NASDAQ Composite
-0.05 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Medical Practitioners Drugs Wholesale Drugs Wholesale Toy & Hobby Stores
 Most Improved Industry (by change in technical rank2)
Building Materials Wholesale
+ 197
Building Materials Wholesale
+ 197
Building Materials Wholesale
+ 197
Medical Practitioners
+ 207
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 19 10.15 22.27% 9.08%
Last Week 10 9.15 86.35% 59.79%
13 Weeks 127 11 46.37%
15.84%
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 SPCB Supercom Ltd 114
Top Technical SPCB Supercom Ltd 114
Top Fundamental SBGI Sinclair Broadcast Group, Inc. 50
Top Tech. & Fund. SBGI Sinclair Broadcast Group, Inc. 50
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 KCG KCG Holdings, Inc. Class A Common Stock When Issue 67
Top Technical KCG KCG Holdings, Inc. Class A Common Stock When Issue 67
Top Fundamental CORE Core-Mark Holding Company, Inc. 0
Top Tech. & Fund. CORE Core-Mark Holding Company, Inc. 0
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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