Weekly Newsletter 07/17/15
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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  

On Monday the markets reacted favorably to prospects of another Greek bailout and the NASDAQ Composite has been on a tear since then with a gain of 4.25% for the week. The week started with a gap up above resistance at the 50 day average level and closed at a new high directly in line with the trend line  corresponding to the highs of the last 6 months. We see from the chart below that each new high was followed by a pull back  so on that basis we should expect a consolidation in the days ahead rather than a continuation of new highs.

Our market trend signals for all three indexes turned upward on Thursday.

NASDAQ Composite  chart
 Weekly Breakout Report  

This was an exceptionally strong week for breakouts with 59 coming from our Cup and Handle and Volatility Squeeze watchlists. The average gain by Friday's close was 4.28% above the breakout price.
 
Breakouts for Week Beginning 07/13/15
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close RS Rank* Last Close Current % off BOP Gain at Intraday High
07/13/15 NEOT CwH N 9.98 10.73 90 12.3875 24.12 32.77
07/14/15 CEMP SQZ Y 36.20 38.25 98 42.1 16.30 16.33
07/13/15 NLNK SQZ Y 46.96 49.97 95 54.43 15.91 15.91
07/14/15 CARA CwH N 13.63 13.73 90 15.65 14.82 14.97
07/13/15 GTN SQZ Y 15.79 16.55 95 17.61 11.53 11.59
07/15/15 RCPT SQZ Y 207.04 230.08 99 229.64 10.92 11.13
07/15/15 TSRO SQZ Y 59.95 61.73 96 65.74 9.66 9.84
07/13/15 MDXG CwH N 11.93 12.11 93 13 8.97 8.97
07/14/15 NLNK SQZ Y 50.02 52.19 93 54.43 8.82 8.82
07/15/15 XON CwH Y 51.44 53.80 97 55.81 8.50 8.67
07/14/15 TITN SQZ Y 15.38 15.38 80 16.13 4.88 8.32
07/13/15 FLXN SQZ Y 23.82 24.28 91 25.6 7.47 8.31
07/13/15 AMZN CwH N 447.04 455.57 92 483.55 8.17 8.18
07/15/15 ESPR SQZ Y 91.95 96.68 99 98.945 7.61 7.78
07/13/15 MRTX SQZ Y 31.61 33.63 95 32.99 4.37 7.09
07/16/15 TSRO SQZ Y 61.57 64.73 97 65.74 6.77 6.95
07/14/15 GTN SQZ Y 16.55 17.03 95 17.61 6.40 6.47
07/13/15 CLFD SQZ Y 16.25 16.89 85 16.45 1.23 6.4
07/14/15 AMZN SQZ Y 455.78 465.57 93 483.55 6.09 6.11
07/13/15 ANIP CwH N 65.46 67.19 95 69.46 6.11 6.11
07/13/15 BKS CwH N 27.10 27.98 88 28.68 5.83 5.83
07/13/15 HQH CwH N 36.81 37.74 84 38.86 5.57 5.57
07/14/15 FLXN CwH N 24.47 25.05 91 25.6 4.62 5.44
07/17/15 ABMD SQZ Y 68.87 72.4 98 72.4 5.13 5.24
07/16/15 EDN SQZ Y 14.31 15.03 81 15 4.82 5.03
07/14/15 EBAY SQZ Y 63.48 63.59 85 66.39 4.58 4.84
07/16/15 LEAF SQZ Y 48.43 50.73 92 50.185 3.62 4.75
07/14/15 INCY SQZ Y 112.98 117.46 97 117.025 3.58 4.17
07/14/15 LION CwH N 17.74 17.79 83 18.415 3.80 3.95
07/13/15 WNR SQZ Y 46.63 47.27 80 48.39 3.77 3.8
07/15/15 ALKS SQZ Y 67.36 68.56 87 69.8 3.62 3.67
07/13/15 NEWT SQZ Y 18.18 18.46 99 18.81 3.47 3.47
07/16/15 RH CwH N 100.80 103.73 80 104.2 3.37 3.38
07/15/15 MSTR SQZ Y 180.92 182.87 80 185.97 2.79 2.97
07/13/15 ACN SQZ Y 98.87 100.55 81 100.43 1.58 2.61
07/16/15 PBE CwH N 61.25 62.32 86 62.77 2.48 2.48
07/13/15 HFC CwH N 45.36 45.69 83 46.43 2.36 2.38
07/13/15 DENN SQZ Y 11.85 12.09 92 11.73 -1.01 2.03
07/15/15 MDCO CwH N 33.77 33.82 91 34.25 1.42 1.92
07/16/15 EXLS CwH N 36.65 36.90 85 37.25 1.64 1.8
07/13/15 THC CwH N 59.80 59.91 85 58.74 -1.77 1.64
07/16/15 ZIOP CwH N 12.81 13.02 98 12.925 0.90 1.64
07/13/15 PLKI SQZ Y 60.67 61.64 86 59.745 -1.52 1.6
07/13/15 IHE CwH N 181.28 182.43 83 184.02 1.51 1.59
07/17/15 WNS SQZ Y 28.61 28.96 90 28.96 1.22 1.4
07/17/15 ATTU SQZ Y 13.81 13.89 96 13.89 0.58 1.09
07/14/15 IHE SQZ Y 182.39 183.81 85 184.02 0.89 0.98
07/16/15 FV CwH N 25.27 25.37 81 25.49 0.87 0.95
07/17/15 CLDX SQZ Y 26.62 26.81 93 26.81 0.71 0.75
07/17/15 EXPE SQZ Y 110.01 110.78 90 110.78 0.70 0.72
07/16/15 WDFC CwH Y 88.83 89.46 80 89.36 0.60 0.71
07/15/15 AVY SQZ Y 63.08 63.52 89 61.75 -2.11 0.7
07/14/15 ATVI SQZ Y 25.88 26.06 88 25.795 -0.33 0.7
07/14/15 NORD SQZ Y 25.17 25.34 89 24.51 -2.62 0.68
07/14/15 CHDN SQZ Y 129.90 129.98 91 129.65 -0.19 0.63
07/15/15 MNK SQZ Y 124.01 124.63 88 123.11 -0.73 0.5
07/16/15 PZN CwH N 11.73 11.77 89 11.68 -0.43 0.34
07/15/15 WIX CwH Y 25.82 25.85 91 25.59 -0.89 0.12
07/14/15 PSX SQZ Y 83.46 83.52 81 83.18 -0.34 0.07
Weekly Average (59 breakouts) 4.28 5.13
*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

New Model for Cup and Handle Watchlist Stocks

Not so much a "Top Tip" this week as a report on what appears to be a promising new algorithm for predicting Cup and Handle pattern stocks that will close higher at the next session.

Readers will know that over the last few weeks I have been emphasizing the importance of positive price and volume moves as an indicator of a possible pending breakout, so I decided to incorporate those findings into a new model to predict Cup and Handle watchlist stocks that would close higher.

Using data from 2014 to date. I created a variable for close up and close down on the day after appearance on the CwH watchlist. I then created models using a statistical technique called Discriminant Analysis to predict the price movement as up or down on the day after appearance on the watchlist. I also used a technique known as "bootstrapping" which samples subsets of the data to build a model that is the best fit over all samples.

Also, I know that the most important criterion for breakout performance is our Relative Strength rank (RS) so I built the models for different levels of RS starting from >= 80 up to >=95. I was looking for an RS level  that would  give me a predicted to actual ratio that would be acceptable for trading. At the >= 95 level I found that the model's success ratio was 68.5%. The results are shown in this table. The successful prediction numbers are highlighted in yellow. When summing these and dividing by the total number of cases we get a success ratio of 68.5%

CwH watchlist entries
where RS >= 95
Predicted Total
Actual Down Up
Closed Down 3780 1714 5494
Closed Up 165 298 463



5957
Predicted % success = (3780 + 298)/5957 = 68.5%

When applying the model to all data since 2008, I found that the success rate was 68.4%. This shows  that the model is robust over boom and bust market cycles.

Conclusion

The implications of this, are that if we place an order to buy at a limit price of the nightly close where the prediction is that the stock will close up, then we will make an immediate profit at least 6 times out of 10.

Over the next week I intend to further refine the model, implement the model predictions on the CwH watchlist and recommend an appropriate trading strategy.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 18086.4 1.84% 1.48% Up
NASDAQ 5210.14 4.25% 10.01% Up
S&P 500 2126.64 2.41% 3.29% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite
4.25 %
NASDAQ Composite
5.64 %
NASDAQ Composite
12.42 %
NASDAQ Composite
10.01 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Tobacco Products - Other Tobacco Products - Other Drugs Wholesale Drugs Wholesale
 Most Improved Industry (by change in technical rank2)
Internet Service Providers
+ 27
Internet Service Providers
+ 83
Tobacco Products - Other
+ 192
Tobacco Products - Other
+ 209
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 GLUU Glu Mobile Inc. 115
Top Technical GLUU Glu Mobile Inc. 115
Top Fundamental ANET Arista Networks, Inc. 37
Top Tech. & Fund. ANET Arista Networks, Inc. 37
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 ZIOP ZIOPHARM Oncology Inc 80
Top Technical IHE iShares Dow Jones US Pharm Indx (ETF) 0
Top Fundamental RH Restoration Hardware Holdings Inc. 27
Top Tech. & Fund. RH Restoration Hardware Holdings Inc. 27
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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