Breakoutwatch Weekly Summary 07/11/20
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|New Buy at Open and Buy on Alert
Guidelines (see Strategy Suggestions)
The NASDAQ continued to power ahead with a gain of 4% this week, setting another new high on Thursday. The index slipped slightly on Friday as volume sagged as traders took the afternoon off. The S&P 500 and DJI also gained although at a smaller rate. Significantly though, the small-cap Russell 2000 slipped 0.5% indicating the lower prospects for smaller business in this challenging economy.
Cup and Handle pattern stocks delivered 6 breakouts for an average gain of 7.2%. To qualify as a breakout, a cup and handle pattern stock must close above its breakout price on volume at least 1.5 times the 50 day average volume. As we shall see below, my latest research into Buy at Open and Buy on Alert strategies indicates that in the current bull market, a volume of just one times adv is sufficient to deliver a satisfactory return.
|There were no
stocks on the latest Cup and Handle Pattern watchlist that meet
all the criteria to buy on alert on Monday. All of them failed
to meet the 1.25 times ADV criteria. Lakeland Industries
is a PPE manufacturer with an RS Rank of 95. Although this may
not be a buy on Monday, we are hearing of serious shortages of
PPE arising again, so it could be one to watch.
No new features this week
I have spent some time this week using the cup and handle backtest tool to look at which stocks have performed best in the current bull market. This has led me to seriously revise the Buy at Open and Buy on Alert strategies. Time hasn't allowed me to completely rewrite the Strategy Suggestions page, which I will try to update in the coming week.
Most significantly, I have found that whereas the previous guidelines suggested a maximum BoP of $20 and minimum volume, these limitations must be raised. This is perhaps not surprising in this bull market where Government support has flowed to the bigger, more expensive, companies which are the most likely to survive a prolonged downturn. Similarly, it is the companies with the best performance compared to their peers that do best.
If using the Buy at Open strategy, there is risk that overnight sell orders to take profits will have been entered. The backtest showed that stock with an RS Rank of 90 were less prone to this.Hence the minimum RS Rank to buy has risen to 90%, limiting candidate stocks to 10% of the overall market. For the Buy on Alert strategy there is not the same risk and RS Rank stocks greater than 80 gave the best performance.
The table below shows the characteristics required to generate the best returns (as revealed by the backtest tool) since April 1, the approximate confirmed start of the bull market. The table also contains a link to an image of the backtest results. I have set the default parameters for the backtest to these parameters.
* Setting the number of positions to 1 in the backtest allocates all available cash to the current buy. This maximizes the return calculated by the tool. You can experiment with other less aggressive options in the tool.
** The Upper ATR value is obtained from Analytical Tools > Trailing Stop Calculator. The Trailing Stop volume must be given to your broker each day before market open.
|Brkout Date||Symbol||Base||Squeeze||Brkout Price||Brkout Day Close||RS Rank*||Last Close||Current % off BOP||Gain at Intraday High|
|*RS Rank on day before breakout.|
|AKBA||13.70||2,884,791||Akebia Therapeutics - Inc.||Biotechnology||96||11.98|
|CTSO||10.48||814,346||Cytosorbents Corporation||Medical Devices||94||10.14|
|RAD||18.64||6,115,311||Rite Aid Corporation||Pharmaceutical Retailers||88||16.21|
|CNSL||7.26||714,969||Consolidated Communications Holdings - Inc.||Telecom Services||85||6.23|
|UNIT||9.75||2,986,686||Uniti Group Inc.||REIT - Industrial||85||9.24|
|MEET||6.26||1,898,994||The Meet Group - Inc.||Internet Content & Information||83||6.24|
|BITA||15.95||994,388||Bitauto Holdings Limited||Advertising Agencies||82||15.86|
|SY||16.06||1,155,123||So-Young International Inc.||Health Information Services||81||14.12|
|These stocks meet our suggested screening factors
for our Cup and Handle Chart Pattern watchlist.
See Revised Rules for Trading Cup and Handle Breakouts
|Index||Value||Change Week||Change YTD||Trend1|
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.
|1 Week||13 Weeks||26 Weeks||Year-to-Date|
|1 Week||3 Weeks||13 Weeks||26 Weeks|
|Charts of each industry rank and performance over 12 months are available on the site|
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