Weekly Newsletter 09/05/14
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
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 Weekly Commentary  

I apologize if you received two copies of this newsletter.

The NASDAQ Composite is consolidating with support at the 4540 level. Volumes improved now summer vacations are over giving an accumulation day with above average volume on Monday and a distribution day, also with above average volume on Tuesday. I expect the consolidation to continue, that is, for the index to move sideways. A break below 4540 would be bearish with an indication that the "September swoon" may be upon us. Expect breakouts to be fewer than this week with gains similarly modest (see below).

NASDAQ Comp
 Weekly Breakout Report  

  The number of breakouts jumped this week as volumes improved while average gains were more modest reflecting the sideways trend.

Breakouts for Week Beginning 09/01/14
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
09/04/14 CBK CwH N 9.97 10.65 11.04 10.73 10.88
09/05/14 AMBA CwH N 36.26 36.90 36.9 1.77 8
09/03/14 YINN CwH N 36.55 37.81 39.12 7.03 7.17
09/05/14 MOBI CwH N 8.48 9.03 9.03 6.49 7.08
09/02/14 ICAD CwH N 10.64 11.11 11.17 4.98 6.86
09/02/14 VNCE CwH N 37.32 38.74 34.19 -8.39 4.72
09/02/14 ALDW CwH N 19.50 20.02 20.15 3.33 4.67
09/02/14 REGN CwH N 354.05 359.50 350.66 -0.96 4.31
09/02/14 INXN SQZ Y 27.89 27.9 28.8 3.26 3.55
09/02/14 SYNA SQZ Y 85.60 85.73 84.39 -1.41 2.63
09/02/14 UVE CwH N 14.10 14.36 14.4 2.13 2.55
09/05/14 JAZZ CwH N 164.72 168.02 168.02 2.00 2.53
09/02/14 TPC CwH N 30.39 31.00 30.73 1.12 2.37
09/03/14 ENI SQZ Y 17.44 17.72 17.71 1.55 2.24
09/04/14 AOSL SQZ Y 9.60 9.7 9.68 0.83 1.98
09/02/14 TMO SQZ Y 122.41 122.72 124.63 1.81 1.84
09/02/14 DLX CwH N 59.84 60.02 59.83 -0.02 1.51
09/02/14 CATO CwH N 35.54 35.75 35.09 -1.27 1.46
09/02/14 NEU CwH N 409.36 412.70 413.29 0.96 1.38
09/02/14 ANN CwH N 41.87 42.06 42.41 1.29 1.36
09/03/14 BIDU SQZ Y 224.90 227.45 226.7 0.80 1.13
09/02/14 FGP CwH N 28.53 28.68 28.11 -1.47 0.6
09/05/14 BZM HTF N 14.80 14.80 14.7975 -0.02 -0.02
Weekly Average (23 breakouts) 1.59 3.51

 
 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

The Significance of Pivot in Relation to Left Cup

I received a question on the Support Forum this week regarding the significance of pivot height. on a cup-with-handle chart. As a reminder, this is the pivot value as a percentage of the left cup. Another way of expressing it is as the % below the left cup, which is shown in the diagram below.

CwH Pattern

As I had never done an analysis of the effect of pivot depth I answered as follows:

Each pivot point represents resistance. The lower the pivot point, then the more upside potential the stock has but this is offset by there being more overhead supply. The effect of this is that if it overcomes a low pivot then it is likely to create another pivot point as it ascends the right side of the cup because previous holders will see an opportunity to cut their losses. At each breakout, overhead supply diminishes. The ultimate, and most significant point of resistance is the left cup high, a breakout from there means there is no longer any overhead supply, so the stock is free to run.

I have now looked at the performance of all breakouts since 2008 over the first twelve weeks after breakout. I looked at pivot depths at 5% increments from +5% to -25%. There were too few cases below -25% to warrant inclusion. I averaged the gain in each group for the breakout day close and at 7 day intervals after that up to 12 weeks. This is what I found:

Pivot Height 0-5% > -5% > -10% > -15% > -20% > -25%

Cases 1322 1267 539 225 115 33
Average
% Gain
Brkout Day 4 4 5 5 5 6

Week 1 4 4 5 6 6 6

Week 2 4 4 5 5 6 6

Week 3 4 5 5 5 7 7

Week 4 5 5 5 5 7 5

Week 5 5 6 5 6 6 5

Week 6 6 6 5 5 6 5

Week 7 6 6 6 6 6 5

Week 8 6 6 7 6 6 7

Week 9 6 6 7 5 4 6

Week 10 6 7 7 4 3 5

Week 11 6 7 7 4 3 6

Week 12 6 7 8 5 5 5

Conclusions
  1. Deeper pivot depths give better gains over the first 3-4 weeks after breakout. If you are looking for short term gains, go for deeper depths.
  2. Over the longer term, shallower depths provide better results, with best results in the -10% to -5% range. This is consistent with there being less overhead supply at shallower pivot depths.
  3. There are more "high handles" (when the pivot is above the left cup) than any other pattern.
  4. Average returns of 4-8% over 12 or fewer weeks should provide the swing trader with healthy cumulative profits over 12 months.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 17137.4 0.23% 3.38% Up
NASDAQ 4582.9 0.06% 9.73% Up
S&P 500 2007.71 0.22% 8.62% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
0.23 %
NASDAQ Composite
2.99 %
S&P 500
6.9 %
NASDAQ Composite
9.73 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Aluminum Aluminum Aluminum Toy & Hobby Stores
 Most Improved Industry (by change in technical rank2)
Music & Video Stores
+ 79
Photographic Equipment & Supplies
+ 128
Home Health Care
+ 154
Foreign Utilities
+ 213
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 RDNT RadNet, Inc. 117
Top Technical RDNT RadNet, Inc. 117
Top Fundamental FNHC Federated National Holding Company 58
Top Tech. & Fund. FNHC Federated National Holding Company 58
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 UVE UNIVERSAL INSURANCE HOLDINGS INC 65
Top Technical AMBA Ambarella, Inc. 51
Top Fundamental REGN Regeneron Pharmaceuticals, Inc. 29
Top Tech. & Fund. AMBA Ambarella, Inc. 51
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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