Weekly Newsletter 01/02/15
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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  

Low volume, profit taking and end of tax year portfolio rebalancing depressed the markets in the final days of the year but the NASDAQ bounced off the 4700 support level to close above its intraday low on Friday.

NASDAQ Comp.
 Weekly Breakout Report  

Low volumes and the 4 day trading week again kept the number of breakouts to a minimum. The recent market gains have created conditions for a more than usual number of High Tight Flag patterns and two HTF breakouts led the leader board this week. More on the HTF pattern below.

Breakouts for Week Beginning 12/29/14
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
12/29/14 OMER HTF N 23.46 23.91 25.01 6.61 6.99
12/29/14 SCO HTF N 75.18 77.10 79.9 6.28 6.73
12/30/14 ADES HSB N 22.15 23.03 21.86 -1.31 6.37
12/31/14 SSNI HSB N 8.05 8.43 8.09 0.50 5.96
12/31/14 ATRC CwH N 19.41 19.96 19.78 1.91 3.5
Weekly Average (5 breakouts) 2.8 5.91

 
 New Features this Week Additional Value that we added this week

In response to a suggestion from a subscriber, RS Rank was added to the Daily Breakout Report.
 
This Week's Top Tip Tips for getting the most out of our site

High Tight  Flag Pattern Rare but Profitable


In How to Make Money in Stocks, William J. O'Neil identified the High, Tight Flag pattern as rare but potentially highly profitable. In his Encyclopedia of Chart Patterns, (John Wiley and Sons, 2000) Thomas Bulkowski found they were not so rare but also very profitable, provided you waited for the breakout to enter the trade. We developed an algorithm to recognize the pattern and introduced it in 2007. At that time we looked at the performance of the pattern during 2007 and and found that it was rare in comparison to the cup-with-handle (CwH) but still found quite often. (see Newsletter for 12/29/07).


Summary of High Tight Flag Patterns for 2007 All >= $6 < $6
No.of Distinct HTF Patterns Recognized 165 105 60
No. of Breakouts 53 37 16
Average gain to Max. High after breakout 73% 50% 126%
Average Drawdown before Max. High after breakout 6.43% 4.48% 7.28%


The pattern is rare because of the conditions necessary to create it - few stocks have gains of 100% or more in eight weeks or less, but that is one of the requirements for the pattern to form. This requirement mandates that a stock that qualifies as an HTF will have a very high relative strength - in the high 90's. Our research has shown that stocks with a high Relative Strength Rank, perform well after breakout.

High Tight Flag Pattern

Our algorithm looks for stocks that meet the following criteria:

  • they must have formed a handle within the last 3 weeks of trading
  • the handle must be at least 5 days long
  • the decline in the handle must be no more than 20%
  • there must have been a gain of at least 100% in the eight weeks prior to the handle formation
  • there is no minimum price or volume requirement

Some definitions of the High Tight Flag require that the stock be moving sideways before the rise and that volume be declining in the handle (like the CwH). We have not incorporated those criteria in the algorithm.

Eight HTF Stocks to Watch

Our HTF watchlist currently lists eight stocks.

Symbol  ↓ Industry Group  ↓ Industry Rank  ↓ RS Rank  ↓ Last Close  ↓ Breakout Price  ↓
OVAS Biotechnology 179 99 45.83 47.85
PSQ Closed-End Fund - Equity 88 99 59.63 61.72
RCPT Biotechnology 179 99 124.81 136.43
SKF Closed-End Fund - Equity 88 99 50.08 55.28
VIXM Closed-End Fund - Equity 88 99 63.37 67.99
LJPC Biotechnology 179 98 17.94 20.15
MTEX Personal Products 145 98 25.16 29.05
MGNX Biotechnology 179 97 35.18 38.58

 
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 17833 -1.22% 0.06% Up
NASDAQ 4726.81 -1.67% -0.2% Up
S&P 500 2058.2 -1.46% -0.03% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
-1.22 %
NASDAQ Composite
5.61 %
NASDAQ Composite
6.18 %
Dow Jones
0.06 %
 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 Drugs Wholesale
 Most Improved Industry (by change in technical rank2)
Dairy Products
+ 44
Dairy Products
+ 83
Dairy Products
+ 150
Specialty Eateries
+ 172
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 OREX Orexigen Therapeutics, Inc. 119
Top Technical OREX Orexigen Therapeutics, Inc. 119
Top Fundamental NOAH Noah Holdings Ltd. 53
Top Tech. & Fund. RAX Rackspace Hosting, Inc 28
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 ATRC AtriCure, Inc. 58
Top Technical ATRC AtriCure, Inc. 58
Top Fundamental ATRC AtriCure, Inc. 58
Top Tech. & Fund. ATRC AtriCure, Inc. 58
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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