Breakoutwatch Weekly Summary 11/06/21

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Weekly Commentary

Revised CWH Price Model gives 80% Breakout Success (See Strategy Suggestions) The NASDAQ composite, along with the other major indexes, continued to set new highs this week and gained a further 3.1%, surpassing the DJI (1.4%) and S&P 500 (2%). Smaller cap stocks did even better with the Russel 2000 gaining 6%. There were several reasons for the renewed optimism: it appeared the Fed would not raise interest rates until late next year, possibly waiting until after the mid-term elections 531,000 jobs were added in October lowering the unemployment rate to 4.6% Interest rates fell blunting inflation fears to some extent Q3 earnings reports continued to beat expectations. In addition, there will now be a further stimulus to the economy now that the infrastructure bill has passed the lower house and can be signed into law. There were 24 breakouts that closed at least 5% above their breakout price, with most coming from the Volatility Squeeze pattern. In the breakout table below, I have highlighted in yellow those breakouts which were predicted by the revised price model. You will see that 4 out of the 5 cup and handle (CWH) breakouts were predicted by the model.

Chart of the Week

Our cup and handle price model selected PNRG as the cup and handle watchlist stock with the highest probability of breakout at the next session. PNRG will announce Q3 earnings on November 23

Strategy Suggestions

CWH Price Model in my analysis Is Breakout Day Volume Significant for Medium Term Success? I showed that high breakout day volume was not necessary for breakout stocks to perform well in the subsequent 28 days. Consequently, I dropped the O'Neil rule requiring breakout day volume to be 1.5 times average daily volume before considering a breakout to have occurred. It follows that what we are really interested in is those stocks that close above their breakout price, regardless of volume. If we can identify those stocks that have a high probability of closing above their breakout price, then we can place a buy at open trade with a stop limit order at or below the breakout price with a reasonable chance of success. In pursuit of a model that would identify stocks likely to close above their breakout price, i performed a discriminant analysis of cup and handle pattern stocks over the last 3 years. Cup and handle watchlist stocks were analyzed as falling into two groups, breakout (BO) and no breakout (No BO), determined by whether or not they closed above their breakout price. When the resulting model was applied over the almost 3 years 2019 to October 28 this year, the results were as follows: The column to focus on is circled. What it shows is that the model predicted 1058 stocks would close above their breakout price (BOP) and 81% (856) actually did close above their BOP. The table also shows that the model failed to predict the 1702 stocks that also closed above BOP. That might appear to show the model was a failure but in contrast, the model also predicted 97% of stocks that fail to close above their BOP. Overall, the model was about 96% correct. So the takeaway is that about 4 in 5 stocks that are predicted to close above their BOP, actually will close above their BOP. How will you know the stocks that the model predicts will close above BOP? 1. By filtering the cup and handle watchlist 2. By reading the Daily Report of CwH Stocks Likely to Close above BoP at Next Session* 3. By looking at the alerts sent to Platinum Subscribers 4. On the Alerts Issued Today page on the site, they are denoted with and asterisk.

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