Weekly Newsletter 03/20/15
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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  

After testing resistance on Wednesday and Thursday the NASDAQ Composite finally broke through on Friday to  set a new all-time high, on volume that was 50% above the 50 day average. Some of the volume was attributable to Friday being a "quadruple witching day".

Wednesday saw the most significant news of the week with the FOMC dropping the word "patient" from their statement. Contrary to expectations, the sky did not fall and stocks surged after the 2pm announcement as it was assumed a raise in interest rates was no longer imminent.

Our trend signal for the NASDAQ remains positive and is now joined by the signal for the DJI. The S&P 500 signal is still negative but could change on Monday.

NASDAQ Comp.
 Weekly Breakout Report  

Except for Wednesday and Friday, volumes this week were below average which restricted the number of breakouts as a volume of 150% of average daily volume is needed for a breakout to be confirmed for all breakouts except those from a High Tight Flag pattern. As usual,  most breakouts were from a cup with handle  pattern and the  highest flyers from that pattern came from stocks with a relative strength rank of over 92. Only three breakouts were under water at the end of the week, with a very satisfactory average gain overall of 5.5%

Breakouts for Week Beginning 03/16/15
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close RS Rank* Last Close Current % off BOP Gain at Intraday High
03/17/15 GLMD CwH N 9.79 10.92 94 13.25 35.34 35.34
03/20/15 UTG HSB N 471.50 588.50 1 588.5 24.81 24.81
03/16/15 EDN CwH N 15.86 16.09 96 18.33 15.57 15.57
03/17/15 VSLR CwH N 11.80 12.23 93 12.93 9.58 11.27
03/16/15 TEO CwH N 23.44 24.66 86 25.35 8.15 11.09
03/19/15 AGRO CwH N 9.88 10.02 85 10.64 7.69 7.69
03/16/15 SIGM CwH N 7.51 7.87 96 7.88 4.93 7.59
03/17/15 PCTY CwH N 30.40 31.60 91 32.63 7.34 7.34
03/19/15 HRTX HTF N 15.47 16.15 95 16.11 4.14 4.4
03/19/15 HRTX CwH N 15.47 16.15 95 16.11 4.14 4.4
03/16/15 SHLM CwH N 43.09 43.92 83 44.79 3.95 3.95
03/20/15 NKE CwH N 98.75 101.98 84 101.98 3.27 3.27
03/18/15 SLG DB N 129.93 130.60 83 134 3.13 3.13
03/20/15 ENSG CwH N 45.34 46.08 84 46.08 1.63 1.63
03/16/15 ADXS CwH N 12.81 13.01 99 12.54 -2.11 1.56
03/18/15 DTSI CwH N 33.72 34.07 94 34.06 1.01 1.45
03/20/15 NORD CwH N 22.47 22.77 88 22.77 1.34 1.34
03/20/15 ALG CwH N 59.88 60.58 87 60.58 1.17 1.17
03/20/15 CUBI CwH N 24.07 24.32 89 24.32 1.04 1.04
03/20/15 TRMB HSB N 25.74 25.92 13 25.92 0.70 0.7
03/19/15 OSIR CwH N 18.40 18.48 91 17.59 -4.40 0.43
03/20/15 WK HSB N 13.68 13.71 47 13.71 0.22 0.22
03/20/15 UBSI CwH Y 38.40 38.43 81 38.43 0.08 0.08
03/18/15 RPTP CwH N 11.88 11.88 81 11.86 -0.17 0
Weekly Average (24 breakouts) 5.52 6.23
*RS Rank on day before breakout.

 
 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

Moderate Handle Depth Gives Best Breakout Day Gain

In my February 28 newsletter (How to Find Cup and Handle breakouts with a 90% Chance of Success) I showed how cup and handle stocks that are close to their breakout price on the day before breakout have a high probability  of breakout.

This week, I looked at the influence of handle depth on the strength of the breakout day gain. We know from my Analysis of a Cup and Handle Chart Pattern article that it is desirable that the stock retreat after forming the pivot but the question arises as to how much retreat generates the most powerful breakouts. To answer this question, I looked at successful cup with handle breakouts since January, 2014. The results are shown in the chart below.

The chart shows a scatter plot of gain as a % of breakout price (pivot) against handle depth as a % of breakout price. Each dot is one observation.

Firstly, notice that the most successful breakouts are clustered around a handle depth of about -5%, but the  vast majority of them have a breakout day gain of less than 5%

Secondly, notice that at very shallow handle depths, the breakout day gain over breakout price is quite small. This is evident from the polynomial regression line which slopes down as handle depths approach zero.

Thirdly, the polynomial regression line shows peak gains at depths of around -12%. However, there are many fewer breakouts at that level so successful breakouts at that depth are rarer.

The optimum depth appears to be in the range -6% to -3%, with a high number of successful breakouts giving average breakout day gains of about 4%.

Conclusion

If we combine the results from February 28 and today we can conclude that the most desirable cup with handle stocks to buy on breakout are those whose price on the day before breakout is within 95% or better of the breakout price and whose cup depth was in the range -3% to -6%.

handle depth study
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 18127.7 2.13% 1.71% Up
NASDAQ 5026.42 3.17% 6.13% Up
S&P 500 2108.1 2.66% 2.39% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
3.17 %
NASDAQ Composite
5.48 %
NASDAQ Composite
9.75 %
NASDAQ Composite
6.13 %
 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)
Dairy Products
+ 66
Office Supplies
+ 135
Music & Video Stores
+ 168
Grocery Stores
+ 169
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 MWW Monster Worldwide, Inc. 102
Top Technical MWW Monster Worldwide, Inc. 102
Top Fundamental ODFL Old Dominion Freight Line, Inc. 30
Top Tech. & Fund. ODFL Old Dominion Freight Line, Inc. 30
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 SIGM Sigma Designs, Inc. 88
Top Technical ADXS Advaxis, Inc. 84
Top Fundamental DTSI DTS, Inc. 54
Top Tech. & Fund. DTSI DTS, Inc. 54
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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