Weekly Newsletter 09/26/14
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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  

The NASDAQ Composite has formed a bearish double top (inverse of a double bottom) with the breakdown point at just below 4500. Although that level was breached on Thursday after AAPL brought down the whole NASDAQ index, the index recovered on Friday. The chart shows that the 4500 level is proving quite significant. It provided resistance in July and is now providing support. A sustained break below 4500 would be quite bearish.
NASDAQ Composite
 Weekly Breakout Report  

As noted above, the NASDAQ is in a bearish pattern so unsurprisingly, the number of breakouts fell to 16 this week.
RDUS was the standout breakout with a gain of 39%. More about this below.

Breakouts for Week Beginning 09/22/14
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
09/23/14 RDUS CwH N 15.98 17.95 22.24 39.17 39.17
09/24/14 DOM SQZ Y 7.25 7.49 7.98 10.07 10.07
09/26/14 AGQ HTF N 55.74 60.86 60.86 9.19 9.19
09/23/14 TREE CwH N 32.10 32.20 34.83 8.50 8.5
09/23/14 CF CwH N 260.25 269.37 277.86 6.77 6.77
09/25/14 TWM HSB N 55.84 57.00 58.93 5.53 5.53
09/26/14 INSY SQZ Y 36.30 38.16 38.16 5.12 5.12
09/23/14 SPB CwH N 87.91 88.56 90.22 2.63 2.63
09/24/14 SPB SQZ Y 88.96 89.42 90.22 1.42 1.42
09/25/14 BRCD CwH Y 10.65 10.72 10.8 1.41 1.41
09/26/14 PII SQZ Y 150.69 152.17 152.17 0.98 0.98
09/26/14 TSRO HSB N 26.87 27.09 27.09 0.82 0.82
09/26/14 SHPG CwH N 260.50 262.64 262.64 0.82 0.82
09/24/14 HRG CwH Y 13.16 13.24 13.19 0.23 0.61
09/26/14 AOL SQZ Y 44.47 44.55 44.55 0.18 0.18
09/24/14 MLM CwH N 132.19 132.25 130.73 -1.10 0.05
Weekly Average (16 breakouts) 5.73 5.83

 
 New Features this Week Additional Value that we added this week
< New Features >
This Week's Top Tip Tips for getting the most out of our site

Chart Quality and Breakout Performance


In our "Chart Quality" page we describe the theoretically desirable features of a cup and handle chart pattern. We also attempt to quantify these features in three metrics: right cup quality (RCQ), handle quality (HQ) and overall chart quality (CQ).

RDUS, which broke out so strongly this week, was a classic CwH pattern which scored highly on these metrics.

RDUS CQ

RDUS chart

On this example, one would be tempted to think that these chart quality metrics are an important predictor of performance after breakout. Unfortunately, a statistical analysis of our breakout history, does not bear this out.

I looked at data for 2014 for all successful CwH breakouts (834) and compared the % gain 7 days after breakout to RCQ, HQ and CQ. The correlations I found were very low:

corellations

As you can see, neither RCQ, HQ or CQ of them were significantly correlated with the 7 day gain after breakout (gainPC).  However, RS was significantly correlated, although still at a low level.

Conclusion

Theoretical chart quality is not a reliable predictor of performance after breakout. Statistically, higher RS rank values are correlated with breakout performance although the relationship s weak.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 17113.2 -0.96% 3.24% Up
NASDAQ 4512.19 -1.48% 8.04% Up
S&P 500 1982.85 -1.37% 7.28% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-0.96 %
NASDAQ Composite
2.6 %
NASDAQ Composite
8.58 %
NASDAQ Composite
8.04 %
 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)
Photographic Equipment & Supplies
+ 93
Music & Video Stores
+ 95
Photographic Equipment & Supplies
+ 155
Home Health Care
+ 177
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. 97
Top Technical RDNT RadNet, Inc. 97
Top Fundamental MEOH Methanex Corporation 20
Top Tech. & Fund. MEOH Methanex Corporation 20
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 BRCD Brocade Communications Systems, Inc. 58
Top Technical BRCD Brocade Communications Systems, Inc. 58
Top Fundamental MLM Martin Marietta Materials, Inc. 19
Top Tech. & Fund. MLM Martin Marietta Materials, Inc. 19
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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