Weekly Newsletter 03/06/15
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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 major indexes lost ground this week mainly due to Friday's distribution day as investors feared a sooner than expected interest rate hike. This seems like an overreaction as the expected interest rate increase is several months away and will inevitably be incremental. Market always over-react to seemingly apparent bad news so let's not behave as  though  the sky is falling. The NASDAQ chart shows where support lies, which is still historically a pretty good level.
NASDAQ Comp.
 Weekly Breakout Report  

The number of breakouts rose from 22 to 25 this week. Interestingly, the two top performers on breakout were head and shoulders bottom stocks with wildly divergent RS Rank values. PBYI had an RS Rank of 98 while STAA had a lowly RS Rank of just 4. We have consistently recommended choosing stocks with an RS Rank above 92 so what explains this dichotomy? We'll examine this in our Top Tip below.
 
Breakouts for Week Beginning 03/02/15
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close RS Rank* Last Close Current % off BOP Gain at Intraday High
03/05/15 PBYI HSB N 209.91 243.17 98.00 232.83 10.92 15.84
03/03/15 STAA HSB N 6.94 7.76 4.00 7.28 4.90 11.82
03/05/15 RGLS CwH N 19.30 21.13 98.00 20.7 7.25 9.48
03/04/15 PTX CwH N 10.90 11.54 97.00 11.78 8.07 8.07
03/05/15 NVEE CwH N 13.47 14.19 92.00 14.24 5.72 5.72
03/06/15 HTBX CwH N 6.99 7.35 95.00 7.35 5.15 5.15
03/04/15 SWHC CwH N 13.70 14.34 82.00 14.23 3.87 5.11
03/05/15 OLED CwH N 37.20 38.87 90.00 38.58 3.71 4.49
03/02/15 IDCC CwH N 53.71 54.06 92.00 52.07 -3.05 3.43
03/06/15 RTRX CwH N 14.90 15.37 88.00 15.37 3.15 3.15
03/02/15 ACHC CwH N 64.78 66.29 87.00 66.72 2.99 3.13
03/02/15 ST CwH N 55.30 56.22 84.00 55.99 1.25 3.04
03/03/15 DXPE HSB N 46.47 47.30 6.00 47.84 2.95 2.95
03/02/15 LMNS CwH N 11.65 11.79 84.00 11.71 0.52 2.75
03/02/15 CISG CwH N 8.48 8.68 88.00 7.83 -7.67 2.36
03/04/15 CHGG CwH N 8.60 8.75 93.00 8.3 -3.49 1.74
03/05/15 FLTX CwH N 43.00 43.08 92.00 43.52 1.21 1.21
03/05/15 KONA CwH N 26.54 26.79 91.00 26.11 -1.62 0.94
03/02/15 TW CwH N 133.45 134.62 87.00 129.11 -3.25 0.88
03/02/15 KAR CwH N 37.02 37.32 82.00 37.03 0.03 0.81
03/02/15 BIG CwH N 48.58 48.88 84.00 48.52 -0.12 0.62
03/05/15 ROIC DB N 17.40 17.47 74.00 16.86 -3.10 0.4
03/02/15 JBT CwH N 35.39 35.52 83.00 33.54 -5.23 0.37
03/05/15 IRS CwH N 17.23 17.29 82.00 17.27 0.23 0.35
03/02/15 MCS CwH N 19.91 19.97 87.00 19.12 -3.97 0.3
Weekly Average (25 breakouts) 1.22 3.76
*RS Rank on day before breakout.

 
 New Features this Week Additional Value that we added this week

Indicator Added to Alert Monitor


Last week's newsletter showing that cup and handle pattern stocks (CWH) within 95% of the breakout price have a 90% chance of successful breakout was met with interest and a request that I add an indicator to the Alert Monitor to designate such stocks. This  has been done. These stocks  are  flagged with an asterisk (*) next to their RS  Rank.

Not surprisingly though, you will find that 90% of the stocks on the alert monitor that come  from a CWH pattern  are  flagged.
 
This Week's Top Tip Tips for getting the most out of our site

An In-Depth Look at the Calculation of RS Rank

Our two top performing stocks this week had RS Rank values of 4 and 98. Both stocks broke out from a head and shoulders bottom pattern (HSB). Since this pattern applies to stocks that are just recovering from a deep decline, how could  one of them have an RS Rank of 98? A quick look at the chart for PBYI gave me the answer so I thought I would use it as a way to illustrate how RS Rank is calculated

Firstly, consider how the RS Rank value is  calculated:
 Raw RS Rank = 12 month Weighted Price Change
= (Price change this quarter * 40%)
+ (Price change 1 qtr ago * 20%)
+ (Price change 2 qtrs ago * 20%)
+ (Price change 3 qtrs ago * 20%)
(Note  that the price  change  three quarters ago counts for 1/5 (20%) of the weighting.)

The raw score is then ranked against the raw score for all other stocks and a final RS Rank in the range 1-99 is calculated

Now look at the 12 month chart for PBYI
chart for PBYI
We can see that although the the price was dropping over the last two quarters, ending in a HSB pattern, the price was almost 4 times higher than 3 quarters ago and double compared to 4 quarters ago.

The Raw RS calculation for PBYI is then



Change from
Date Close Q1 Q2 Q3 Q4
2014-Apr-04 106.41




2014-Jul-03 70




2014-Oct-03 250




2015-Jan-02 189.86




42067.00 206.96 1.09 0.83 2.96 1.94

Weight 0.4 0.2 0.2 0.2

Raw Score 0.43603 0.16557 0.59131 0.38899

Raw RS



1.58189

Let's compare that to the Raw RS for NASDAQ Composite as we don't have an index for all stocks



Change from
Date Close Q1 Q2 Q3 Q4
2014-Apr-04 4127.73




2014-Jul-03 4485.92




2014-Oct-03 4475.62




2015-Jan-02 4726.81




2015-Mar-04 4967.14 1.05 1.11 1.11 1.20

Weight 0.4 0.2 0.2 0.2

Raw Score 0.42034 0.22196 0.22145 0.24067

Raw RS



1.10443

So the Raw RS Rank for PBYI is substantially higher than for the NASDAQ as a whole. You can therefore see why PBYI would rank at 98 when ranked against all other stocks. However, note that before the turn up, PBYI would still have had a very high RS Rank, so RS Rank does not always indicate a stock is moving higher. At its lowest close on January 6, the RS Rank was still a very high 97.

The Interpretation of RS Rank

Our RS Rank compares a stock's performance over 12 months to all other stocks in our database (approx. 6,000). In general a high RS Rank denotes a stock is performing well, but as we have seen, a falling stock may still have a high RS Rank. What is important is that RS Rank be improving. This will usually be the case for our 'long' patterns.

So, don't rely solely on RS Rank as an indicator of possible future performance, always look at the chart as well.
 
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 17856.8 -1.52% 0.19% Up
NASDAQ 4927.37 -0.73% 4.04% Up
S&P 500 2071.26 -1.58% 0.6% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
-0.73 %
NASDAQ Composite
3.07 %
NASDAQ Composite
7.52 %
NASDAQ Composite
4.04 %
 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)
Office Supplies
+ 101
Office Supplies
+ 100
Photographic Equipment & Supplies
+ 159
Specialty Eateries
+ 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 RAD Rite Aid Corporation 101
Top Technical RAD Rite Aid Corporation 101
Top Fundamental MDXG MiMedx Group, Inc 89
Top Tech. & Fund. MDXG MiMedx Group, Inc 89
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 RTRX Retrophin, Inc. 71
Top Technical OLED Universal Display Corporation 46
Top Fundamental ACHC Acadia Healthcare Company, Inc. 47
Top Tech. & Fund. FLTX Fleetmatics Group PLC 43
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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