Breakoutwatch Weekly Summary 09/03/16

You are receiving this email because you are or were a subscriber, or have subscribed to our weekly newsletter. This newsletter summarizes the breakout events of the week and provides additional guidance that does not fit into our daily format. It is published each weekend.

New Features this Week
Strategy Suggestions
Breakouts Summary
Breakouts Detail
Top Cup and Handle Chart Pattern Stocks
Breakouts Index
Major Indexes Performance
Best Performing Index
Best Performing Industry
Most Improved Industry

Weekly Commentary
DJI Trend Indicator Gives Downturn Warning

Our trend indicator for the DJI turned down on Thursday. A weakness in any major indicator can be a warning sign that others may follow, although for now, the trend indicator for both the S&P 500 and NASDAQ Composite remain at 'up'. We know that most breakouts come from the NASDAQ so we follow that index more closely than the others. The NASDAQ chart is showing that a potential head and shoulders top pattern (HST) is forming, with a possible right shoulder being established in Friday's trading.

This is not yet a sign for alarm, as the head and shoulders pattern would need to be completed before a distinctive bearish pattern is confirmed. This would occur if the price crosses the dashed line shown in the chart below. That is, a fall to a closing price below 5225. This is worth watching in the coming days. If the HST pattern is completed, then opening new long positions should be discouraged.
You can learn how we determine a Head and Shoulders Top pattern here.

New Features this Week
No new features this week.
Strategy Suggestions
Should any of your holdings complete a head and shoulders top pattern, our strategy suggestions are:

We published an analysis of Head and Shoulders Top breakdowns in our newsletter of 7/29/06. We found that a breakdown occurred in 96.38% of cases. This indicates that the head and shoulders pattern is a very powerful predictor of a price decline to come. This is true whether the slope of the neckline is upwards, flat or downwards. Of these, the decline after breakdown exceeded 5% in 74.5% of breakdowns.
Upward sloping necklines are much more common than downward sloping necklines and have a slightly higher potential return by about 1%.
As with the 50 DMA breakdown watchlist, our suggestions are based on my analysis of the results quoted, a review of the literature and the experiences of a short sale hedge fund manager
  • Short selling is risky because your potential loss is unlimited. When going long, the maximum amount you can lose is your initial investment, when shorting there is no limit to how high the stock can go from your entry level, so cover quickly when the stock moves against you.
  • Review the H&S Top watchlist prior to the market open to select stocks you would consider shorting if an alert is issued.
  • Set a target cover price before you go short, using either a fixed percentage or an expected support level, and take profits at that level.
  • If you go short on an alert and the stock recovers above the support level by the close, consider covering your position immediately.
  • If you go short on an alert and the stock closes below the support price but volume doesn't meet the 1.5 times adv requirement, don't cover but wait for the action on the following day.
  • Cover when a support level is tested and found to hold.
  • Don't bet against the market.
If you hold a long position in a stock that has completed the right shoulder of an H&S pattern, then you should sell because 96% of these stocks will break down.

Because of the high probability that a breakdown is about to occur, you may wish to open a short position immediately an H&S is identified before waiting for the breakdown. The position can then be added to when the breakdown occurs.Immediately after the breakdown, set a stop loss at the breakdown price to protect yourself against the 17.6% of breakdowns that recover the next day.

Otherwise, a reasonable target profit for the trade is 70% of the target price.
Breakouts Summary by Watchlist for Week Beginning 08/29/16
List Breakouts Avg. Gain
CWH 11 3.26
SQZ 5 2.9
Breakouts Detail for Week Beginning 08/29/16
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close RS Rank* Last Close Current % off BOP Gain at Intraday High
2016-08-30 AMID CWH n 12.50 13 92 14.28 14.24% 14.4%
2016-08-30 CLCD SQZ y 9.44 11 96 10.66 12.92% 16.53%
2016-09-02 AVHI CWH n 15.33 16 81 16.08 4.89% 5.28%
2016-08-29 LGIH CWH n 36.44 38 92 38.22 4.88% 7.66%
2016-08-30 USAC CWH n 16.25 16 85 16.86 3.75% 3.75%
2016-08-29 EVA CWH n 24.64 25 93 25.28 2.6% 3.94%
2016-09-01 STS SQZ y 17.23 17 98 17.62 2.26% 3.42%
2016-09-02 SQM CWH n 27.23 28 95 27.74 1.87% 1.87%
2016-09-02 CIB CWH n 40.16 41 87 40.9 1.84% 2.56%
2016-09-02 HNRG CWH n 6.75 7 80 6.87 1.78% 4%
2016-08-30 LMAT SQZ y 18.05 18 83 18.35 1.66% 4.43%
2016-08-30 INTL CWH n 36.41 37 85 36.84 1.18% 2.33%
2016-09-02 WK CWH n 17.93 18 84 18.1 0.95% 0.95%
2016-08-31 CRAI SQZ y 26.85 27 80 26.73 -0.45% 16.61%
2016-08-30 HBP SQZ y 6.36 6 97 6.24 -1.89% 5.19%
2016-08-29 AGM CWH n 40.74 41 87 39.88 -2.11% 1.64%
*RS Rank on day before breakout.
12 Month Successful Breakout History
Breakout History
Top Rated Cup and Handle Stocks as of Friday September 02, 2016
Symbol BO
Company Industry RS
SKY 12.29 45,186 Skyline Corporation Manufactured Housing 99 11.99
SMMF 20.47 49,941 Summit Financial Group - Inc. Regional - Mid-Atlantic Banks 94 19.78
ENBL 14.93 364,054 Enable Midstream Partners - LP Oil & Gas Pipelines 93 14.25
SMLP 25.02 214,120 Summit Midstream Partners - LP Oil & Gas Pipelines 93 24.91
DAKT 9.99 620,024 Daktronics - Inc. Computer Based Systems 92 9.74
CEQP 22.14 388,228 Crestwood Equity Partners LP Oil & Gas Pipelines 92 20.95
OFG 11.25 564,990 OFG Bancorp Money Center Banks 92 10.90
ARLP 21.20 505,524 Alliance Resource Partners - L.P. Industrial Metals & Minerals 92 20.77
These stocks meet our suggested screening factors for our Cup and Handle Chart Pattern watchlist.
See Revised Rules for Trading Cup and Handle Breakouts
Major Index Summary
Index Value Change Week Change YTD Trend1
Dow 18492
0.53% 6.12% Down
NASDAQ 5249.9
0.59% 4.84% Up
S&P 500 2179.98
0.5% 6.66% Up
1The Market Trend is derived from our proprietary market model. The market model is described on the sitehere.
2The site also shows industry rankings based on fundamentals, combined technical and fundamentals, and on price alone. The site also shows daily industry movements.
Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
NASDAQ Composite NASDAQ Composite
6.22 %
NASDAQ Composite
11.3 %
S&P 500
6.66 %
Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Manufactured Housing
Manufactured Housing
Most Improved Industry (by change in technical rank2)
Telecom Services - Foreign
Manufactured Housing
Manufactured Housing
Charts of each industry rank and performance over 12 months are available on the site


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