Breakoutwatch Weekly Summary 02/10/18

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
Best Performing Index
Best Performing Industry
Most Improved Industry

Weekly Commentary
Volatility Returns. Adjust Trailing Stops Accordingly. Watch Market Signals

Without entering into the debate about what caused the markets to crash this week, the most important lesson to be drawn is that volatility, which took a holiday during 2017, is back. This has implications for our suggested trading strategy and these are discussed below.

Our trend model for the DJI and S&P 500 turned down on Monday and for the NASDAQ on Wednesday. It is strongly suggested that long positions not be opened while the trend model remains negative. All three major indexes lost over 5% for the week, although the NASDAQ did lose slightly less than the other two.

Although there are long term concerns about the damage the budget deficit and tax cuts may do to the economy, it is likely that these will have a short term stimulus effect and that corporate profits will improve during 2018. What is unknown is to what extent this was already factored into share prices before this week's adjustment. Prices may continue to unwind next week, although Friday's strong accumulation day and mid-day reversal may have signaled that we have already seen the immediate bottom. I expect that once our trend model again turns positive, the upward trend will continue during 2018 barring some external event.


New Features this Week

No new features this week.
Strategy Suggestions
Trailing Stops Require Adjusting

The purpose of trailing stops is to limit losses when a stock loses value. Prior to 2016, we suggested using a trailing stop of 7% and during 2016 our backtest model shows this was quite successful. We did not adjust that suggestion during 2017, and the result was that the model performed negatively as shown in this image reproduced from the back test  tool covering the years 2016- 2017. The failure of the model from the start of 2017 is clear. Volatility was low (the S&P 500 never fell more than 2% during 2017) and the model held on to poorly performing stocks longer than it should have.

backtest 2016-2017

Adjusting the model for 2017 with a trail stop of 3% shows how the model should have performed. Poorly performing stocks were sold quickly so more profitable ones could be bought.

2017 3% tral

Market volatility this week suggests that a return to the 7% trailing stop would be prudent. Adjusting our current Buy  at Open Strategy, taking advantage of new indicators introduced since the start of the year, with a 7% trailing stop shows that during 2017 the model would still have produced an excellent return.

2017 7% trail

Our latest strategy suggestions are here. Note that the suggested trailing stop has been reset to 7% from the most recent high.
Breakouts Summary by Watchlist for Week Beginning 02/05/18
List Breakouts Avg. Gain
CWH 2 6.11
SQZ 3 0.93
Breakouts Detail for Week Beginning 02/05/18
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close RS Rank* Last Close Current % off BOP Gain at Intraday High
2018-02-07 QBAK CWH n 10.99 11.78 95 11.7 6.46% 16.01%
2018-02-09 MCFT CWH n 24.89 26.32 85 26.32 5.75% 7.47%
2018-02-09 HLG SQZ y 49.08 51.19 99 51.19 4.3% 4.44%
2018-02-09 RDWR SQZ y 20.66 20.86 82 20.86 0.97% 1.5%
2018-02-07 ZGNX SQZ y 38.71 38.8 98 37.75 -2.48% 3.33%
*RS Rank on day before breakout.
Top Rated Cup and Handle Stocks as of Friday February 09, 2018
Symbol BO
Company Industry RS
CYRX 9.26 151,005 CryoPort - Inc. - Common Stock Packaging & Containers 97 7.86
FBR 18.03 2,174,332 Fibria Celulose S.A. Paper & Paper Products 94 16.52
MOD 24.90 563,124 Modine Manufacturing Company Common Stock Auto Parts 94 23.00
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 24190.9
-5.21% -2.14% Down
NASDAQ 6874.49
-5.06% -0.42% Down
S&P 500 2619.55
-5.16% -2.02% Down
1The Market Trend is derived from our proprietary market model. The market model is described on the site here.
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 Dow Jones
3.28 %
Dow Jones
10.67 %
NASDAQ Composite
-0.42 %
Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Auto Parts Wholesale
Auto Parts Wholesale
Auto Parts Wholesale
Resorts & Casinos
Most Improved Industry (by change in technical rank2)
Advertising Agencies
Sporting Goods
Drug Related Products
Medical Practitioners
Charts of each industry rank and performance over 12 months are available on the site


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