Weekly Newsletter 01/31/14
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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  

Our market rend signal for the NASDAQ turned down on Wednesday. The index recovered on Friday to close slightly above the 50 day average. Although this is a time for caution, I continue to believe this is a consolidation, not a correction, and the markets will recover as the economy improves.

NASDAQ Composite

Despite the downturn there were 21 breakouts this week, which included 7 from our new "Squeeze Play" watchlist. The top performer was ORBC which broke out from a CWH pattern with squeeze and hit an intraday gain of 19%. The best "Squeeze Play" performer was PRTA with a 9.8% intraday gain. There is more below about Squeeze play.
 New Features this Week Additional Value that we added this week

Results for 'Squeeze Play" breakouts are now included in our Recent Breakouts report. AS you  will see below, we are considering a breakout from this watchlist to be a successful breakout if it closes above the 'trigger' price and also  exceeds 150% of 50 day average volume.
This Week's Top Tip Tips for getting the most out of our site

Squeeze Play Backtest Results

I have continued my analysis of the "Squeeze Play" watchlist and attempted to identify when alerts from this list have the most value.

Using my extensive historical database, I looked at all the situations since January, 2008 (so as to include the crash) where a stock would have qualified for the Squeeze Play watchlist and an alert would have been issued*. I found  that in 56% of cases, the stock closed above the trigger price**.

Delving further, I found that the probability of the stock closing above the alert price increased as volume for that day exceeded the 50 day average volume. The table below shows the number of alerts that would have been issued at each volume level and the number that would have been considered successful. You can see that at a volume ratio of 1.5 the number of successes rises to 66%, which is consistent with the success rate for CwH breakouts. I am now considering a SQZ breakout to be successful if the breakout day volum eexceeds 150%.

The table also shows the average gain for the days following the breakout day (day 0) and the 6 days following.

Volume
Ratio
# Alerts # Success Success % Average % Gain for each day after breakout
0 1 2 3 4 5 6
1 1552 927 60 1.57 1.72 1.84 1.84 1.85 1.99 2.17
1.1 1350 811 60 1.65 1.84 2.01 2 2.01 2.17 2.38
1.2 1162 719 62 1.7 1.85 2.01 1.98 1.98 2.08 2.33
1.3 1015 642 63 1.77 1.9 2.06 2.06 2.04 2.17 2.42
1.4 884 577 65 1.82 1.93 2.1 2.09 2.03 2.18 2.5
1.5 776 509 66 1.88 1.95 2.15 2.16 2.08 2.18 2.48
1.6 677 445 66 1.96 2.02 2.25 2.33 2.22 2.31 2.59
1.7 579 391 68 2 2.06 2.35 2.46 2.39 2.41 2.69
1.8 496 335 68 2.07 2.04 2.29 2.39 2.3 2.2 2.63
1.9 431 290 67 2.15 2.1 2.29 2.19 2.07 2.04 2.45
2 390 265 68 2.15 2.15 2.4 2.23 2.12 2.16 2.58
2.1 344 235 68 2.18 2.12 2.39 2.25 2.19 2.25 2.74
2.2 317 218 69 2.24 2.07 2.22 2.1 2.09 2.07 2.59
2.3 286 197 69 2.3 2.18 2.35 2.32 2.23 2.23 2.7
2.4 249 173 69 2.35 2.2 2.44 2.32 2.12 2.02 2.28
2.5 230 155 67 2.35 2.19 2.42 2.31 2.11 1.82 2.23
2.6 209 144 69 2.39 2.27 2.55 2.43 2.23 1.95 2.3
2.7 187 130 70 2.38 2.23 2.52 2.4 2.25 1.91 2.3
2.8 172 121 70 2.42 2.24 2.61 2.38 2.14 1.92 2.31
2.9 159 115 72 2.45 2.18 2.57 2.43 2.12 1.88 2.25

Conclusion

Alerts from the "Squeeze Play" watchlist will be profitable if they can be bought at the trigger price 56% of the time. The success rate rises as volume rises, so when an alert is issued, an intraday chart should be viewed and the volume level at alert time checked. If it looks as though volume will be significant for the day, then the trade can be entered.

I have not yet analyzed the effect of buying at the next day's close if a SQZ breakout is confirmed. I hope to do that by next weeks newsletter.

*That is, the stock was ascending the right side of a cup, A squeeze situation was on, momentum was positive, and momentum was increasing and an alert would have been issued on the following day.

** The trigger price is the price needed to move the upper Bollinger Band outside the upper Keltner Channel meaning that the squeeze would end.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 15698.8 -1.14% -5.3% Down
NASDAQ 4103.88 -0.59% -1.74% Down
S&P 500 1782.59 -0.43% -3.56% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
S&P 500
-0.43 %
NASDAQ Composite
4.64 %
NASDAQ Composite
11.23 %
NASDAQ Composite
-1.74 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Manufactured Housing Manufactured Housing Drugs Wholesale Toy & Hobby Stores
 Most Improved Industry (by change in technical rank2)
Publishing - Books
+ 143
Semiconductor - Memory Chips
+ 194
Medical Practitioners
+ 202
Photographic Equipment & Supplies
+ 171
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 21 9.77 21.99% 1.14%
Last Week 6 9.46 3.88% -5.47%
13 Weeks 125 10.38 20.37%
4.8%
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 YGE Yingli Green Energy Holding Company Limited 103
Top Technical YGE Yingli Green Energy Holding Company Limited 103
Top Fundamental PCLN Priceline.com Inc 26
Top Tech. & Fund. PCLN Priceline.com Inc 26
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 ORBC ORBCOMM Inc 112
Top Technical ININ Interactive Intelligence Group Inc 33
Top Fundamental QCOR Questcor Pharmaceuticals Inc 50
Top Tech. & Fund. QCOR Questcor Pharmaceuticals Inc 50
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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