Weekly Newsletter 01/09/15
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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  

The week saw another sharp turnaround known as a v-shaped bottom. Our market signals for the three major index all went to "sell" on Tuesday but the sharp recovery resulted in the trend indicator for the DJI returning to buy on Thursday. The indicators for the S&P 500 and the NASDAQ remain at "sell".

The NASDAQ chart is showing a possible head and shoulders top following Friday's reversal. This pattern will be confirmed if the index falls below the "neckline" at 4570. A head and shoulders top is a bearish pattern so a fall below 4570 could be an indication a deeper correction is in progress.

This week saw the third V-shaped bottom in 3 months but there have been many over the past few years. I discuss why and how they form in this week's top tip and how to profit from them.
NASDAQ Composite
 Weekly Breakout Report  

The sharp reversal and above  average volume on Wednesday and Thursday produced a flurry of breakouts
 
Breakouts for Week Beginning 01/05/15
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
01/07/15 ADXS HTF N 9.00 9.12 11.3 25.56 25.56
01/05/15 QURE CwH N 16.50 17.16 18.34 11.15 11.15
01/05/15 GEVA CwH N 97.75 100.48 108.51 11.01 11.01
01/08/15 ASPX HTF N 54.36 55.81 59.34 9.16 9.16
01/08/15 MCRI SQZ Y 17.36 17.95 18.94 9.10 9.1
01/06/15 ALGN SQZ Y 57.39 57.45 62.58 9.04 9.04
01/07/15 OC HSB N 36.30 37.16 39 7.44 7.44
01/08/15 HVT HSB N 22.36 23.72 23.97 7.20 7.2
01/09/15 AYI CwH N 142.54 151.50 151.5 6.29 6.29
01/07/15 CUDA CwH N 38.01 38.92 38.02 0.03 5.63
01/06/15 SPG CwH N 187.46 191.28 196.57 4.86 4.86
01/07/15 CMG CwH N 693.96 694.26 714.27 2.93 3.75
01/08/15 ENT CwH N 14.43 14.69 14.65 1.52 3.53
01/08/15 BCC CwH N 38.32 38.63 38.66 0.89 3.16
01/07/15 AMPH CwH N 12.39 12.78 11.98 -3.31 3.15
01/08/15 MANH CwH Y 42.38 43.46 43.52 2.69 3
01/08/15 FSL CwH N 25.85 26.54 26.57 2.79 2.79
01/08/15 PGEM CwH N 14.07 14.46 14.24 1.21 2.77
01/06/15 VGLT CwH N 78.71 80.84 80.53 2.31 2.71
01/05/15 VGLT CwH N 78.71 79.58 80.53 2.31 2.71
01/08/15 NSP CwH N 34.62 34.90 35.52 2.60 2.6
01/07/15 BBBY CwH N 77.46 78.21 74.09 -4.35 2.57
01/08/15 MPW CwH N 14.37 14.73 14.66 2.02 2.51
01/08/15 CLW CwH N 71.58 72.67 72.41 1.16 1.52
01/08/15 CENTA CwH N 9.98 10.08 10.13 1.50 1.5
01/08/15 EPHE SQZ Y 38.62 39.19 38.94 0.83 1.48
01/07/15 NTES SQZ Y 102.20 102.62 103.58 1.35 1.35
01/08/15 VVI CwH N 27.31 27.65 27.25 -0.22 1.24
01/07/15 CBPO SQZ Y 68.00 68.7 66.93 -1.57 1.03
01/08/15 CFP HTF N 15.50 15.59 15.49 -0.06 0.65
01/08/15 PEP DB N 97.36 97.48 96.82 -0.55 0.56
01/08/15 ETH CwH N 31.24 31.33 31.21 -0.10 0.29
01/08/15 DY CwH N 35.63 35.65 34.77 -2.41 0.06
01/08/15 CRY CwH N 11.75 11.75 11.37 -3.23 0
Weekly Average (34 breakouts) 3.27 4.45

 
 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

V-Shaped Bottoms: Why they Form and How to Profit from Them


During the bull market since April 2009, there have been many instances of of sharp falls and equally sharp reversals. These form what is known as a V-shaped bottom. They are interesting because market bottoms used to be more rounded as the downward trend stops and consolidation and recovery of confidence begins. Recognizing a V-shaped bottom can give an opportunity for quick short term gains.

This chart shows 11 clearly distinguishable v shaped bottoms in the last 3 years..

V-Shaped Bottoms
How and Why V-Shaped Bottoms Form

V-Shaped bottoms form when there is a strong trend in place with market fear that the trend will soon be broken and that a major correction is due. The longer the upward trend remains in place, the more likely are we to see V-shaped bottoms. This has been the situation in the US markets since April 20009. Shortly after a correction to the the trend starts, major market players start to believe the correction they have been expecting is finally in place and start to short the market in large numbers, causing a steep decline in prices. This decline is arrested when there is a mid-session reversal and the market closes above its lows of the day, usually on above average volume.

When this happens it triggers short covering by those who were short the market, resulting in high volume buying as they close their short positions. This causes the steep reversal we see in a V-shaped bottom.

How to Profit from a V-Shaped Bottom

Look at the 6 month NASDAQ chart above. You will see that when there was an intraday reversal, characterised by a lower shadow on the candlestick, it was followed by strong positive volume the next day. On that second and third day, you can buy breakouts with reasonable assurance that the breakout will be successful and profitable.

This week, the intraday reversal occurred on Tuesday the 6th January. In the following two days, there were 27 successful breakouts - the vast majority of the 34 recorded this week.
 
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 17737.4 -0.54% -0.48% Up
NASDAQ 4704.07 -0.48% -0.68% Down
S&P 500 2044.81 -0.65% -0.68% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.48 %
NASDAQ Composite
10 %
NASDAQ Composite
6.54 %
Dow Jones
-0.48 %
 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)
Basic Materials Wholesale
+ 63
Basic Materials Wholesale
+ 87
Dairy Products
+ 138
Specialty Eateries
+ 180
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 ZAGG ZAGG Inc 113
Top Technical ZAGG ZAGG Inc 113
Top Fundamental ADS Alliance Data Systems Corporation 15
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 CENTA Central Garden & Pet Company 72
Top Technical CENTA Central Garden & Pet Company 72
Top Fundamental CMG Chipotle Mexican Grill, Inc. 29
Top Tech. & Fund. CMG Chipotle Mexican Grill, Inc. 29
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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