Weekly Newsletter 06/13/14
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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.

Trading In-The-Money Options from the Cup and Handle Watchlist

Join us for a webinar on Jun 16, 2014 at 6:00 PM MDT.

Register now!

https://attendee.gotowebinar.com/regist/1239173053251242241

Stocks in a volatility squeeze that breakout from a cup and handle pattern can provide significant gains if traded as in-the-money options. This webinar will cover the theory behind this strategy and how to put it into practice.

After registering, you will receive a confirmation email containing information about joining the webinar.

See more below

 Weekly Commentary  


The NASDAQ Composite attempted to break resistance on Monday but slipped back setting the trend for the week with the three major indexes closing for a loss. With tensions rising in the middle east, we are unlikely to see a change in direction in the short term. Our trend indicators remain positive but that is because there is  always a short lag while they detect a change in trend.

NASDAQ Comp
 Weekly Breakout Report  

The number of breakouts fell substantially, reflecting the downward trend for the week.

Breakouts for Week Beginning 06/09/14
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
06/09/14 CLDX HSB Y 15.73 16.26 17.15 9.03 12.02
06/10/14 ADHD SQZ Y 18.70 19 19.54 4.49 10.96
06/09/14 GLNG CwH N 47.54 48.66 51.87 9.11 9.17
06/09/14 ALNY SQZ Y 64.24 65.96 67.73 5.43 6.48
06/09/14 HW SQZ Y 13.36 13.95 13.79 3.22 5.99
06/09/14 SCOR SQZ Y 33.44 34.23 35.1 4.96 5.05
06/09/14 ATRO SQZ Y 59.72 61.99 55.11 -7.72 4.39
06/11/14 MTRX SQZ Y 35.77 35.86 36.92 3.21 4.39
06/10/14 SGMO SQZ Y 15.61 16.27 15.77 1.02 4.29
06/11/14 MMYT CwH N 28.97 29.45 29 0.10 4.21
06/09/14 SWIR SQZ Y 19.58 20.09 20.05 2.40 3.98
06/09/14 MSL SQZ Y 18.74 19 18.91 0.91 3.04
06/09/14 NWPX SQZ Y 37.41 38.08 37.385 -0.07 2.62
06/09/14 FISI SQZ Y 24.32 24.79 22.73 -6.54 2.3
06/09/14 PEBO SQZ Y 25.84 25.94 25.69 -0.58 1.82
06/12/14 OAS SQZ Y 51.86 52.41 52.68 1.58 1.64
06/13/14 TXI CwH N 91.46 92.36 92.36 0.98 1.07
06/10/14 BSAC SQZ Y 26.21 26.23 26.29 0.31 0.72
Weekly Average (18 breakouts) 1.77 4.67
 
 New Features this Week Additional Value that we added this week

No new Features this week.
This Week's Top Tip Tips for getting the most out of our site

Why the Cup and Handle with Squeeze works for Options Trading

We know that stocks that are in a cup and handle pattern have a strong potential to move higher if they break through their breakout price. For this reason alone, CwH breakouts offer a potentially rewarding call options play. When we add the "squeeze" into the mix the potential for exceptional profits is multiplied. Here's why.

As you probably know, options pricing is often done using the Black-Scholes model. Inputs to the model are
  • Stock price
  • Strike price
  • Historical volatility
  • Days to expiration
  • Risk-free rate of interest.

(see: http://www.investopedia.com/university/optionvolatility/)

It follows that if "historical volatility" is low then the expected future volatility (known as implied volatility)  is also low. In other words, option price is a function of volatility.

Stocks in a squeeze are experiencing low "historical volatility", so the options price of a CwH stock in a squeeze will be lower than an equivalently priced CwH stock not in a squeeze.

A breakout from a squeeze results in a quickly changing implied volatility and a consequent jump in the call option price. By taking a call position at the time of the breakout we can profit substantially from this change in price. While the underlying stock price may only move 5%, the change in the option price can be many multiples of that.

Our webinar "Trading In-The-Money Options from the Cup and Handle Watchlist" will explain how to execute call option trades from the cup with handle watchlist. Topics covered:
  • Review CWH Patterns
  • The New Squeeze Filter
  • What is a CALL option
  • Why Use Options To Trade the CWH Move
  • Examples of Trades / Results
  • How to Set Filters and Alerts
  • Q&A
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 16775.7 -0.88% 1.2% Up
NASDAQ 4310.65 -0.25% 3.21% Up
S&P 500 1936.16 -0.68% 4.75% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.25 %
S&P 500
5.16 %
S&P 500
9.06 %
S&P 500
4.75 %
 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)
Basic Materials Wholesale
+ 77
Cleaning Products
+ 110
Foreign Utilities
+ 209
Foreign Utilities
+ 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.
 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 SKBI Skystar Bio-Pharmaceutical Company 106
Top Technical SKBI Skystar Bio-Pharmaceutical Company 106
Top Fundamental EPAM EPAM Systems, Inc. 45
Top Tech. & Fund. EPAM EPAM Systems, Inc. 45
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 MMYT MakeMyTrip Limited 50
Top Technical MMYT MakeMyTrip Limited 50
Top Fundamental TXI Texas Industries, Inc. 35
Top Tech. & Fund. TXI Texas Industries, Inc. 35
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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