Last week we commented that the NASDAQ was in a cup-with-handle formation. By Monday it had registered another accumulation day and set a new high before pulling back slightly on Tuesday. The next three sessions each produced accumulation days and the index closed 2.2% higher for the week, comfortably beating the DJI, up 0.7%, and the S&P 500, also up 0.7%. The NASDAQ is now in striking distance of its last line of resistance at its 52 week high of 2153.83 set on January 26.

Last week there were concerns that the falling dollar would lead to higher import prices which, combined with rising oil prices, would lead to higher prices, which in turn would raise inflation fears with a subsequent response by the Fed to raise interest rates. Although the dollar remains weak and the budget deficit continues to threaten to raise interest rates in the longer term, these fears have receded following a dramatic fall in oil prices this week. Friday's employment report was disappointing, but it seems the markets are well placed to continue to rise in the near term.

The number of breakouts was down again this week. Many stocks have broken out over the last month and there are now fewer stocks in consolidating bases than was the case a while ago. For example, the number of stocks on our cup-with-handle list is only half what it was 4 weeks ago. While this might seem to offer fewer money making opportunities, in reality it allows more time for due diligence and careful stock selection. The potential for exceptional gains continues while market conditions continue to be favorable.

Healthcare again produced the most breakouts (6) with Computer Software registering 4.

The best performing breakouts for the week were BABY, which rose 18.7% before slipping back to a gain of 10.16% since Monday, and ZOLT which gained 14.53% on Thursday before dropping back to a gain of 7.5% for the week.

In our Tip of the Week, we show you how you can improve your returns, and find quality stocks that will never appear on our watchlists, through careful selection of stocks from our BaseWatch screen. Don't miss it!

There were no new features introduced this week..

Use BaseWatch to find quality stocks building their bases

For a stock to appear on our cup-with-handle watchlist, it must first have come quite a long way up the right side of its cup AND it must have formed a handle with the mid-point of the handle being above the mid-point of its base. This means a cup-with-handle selection algorithm will not find stocks that are low in their base, and/or stocks that have not formed a handle.

This poses the question, can I find stocks earlier in their progression up the right side of their cup, or have not formed a handle, so I can get in earlier and improve my return? Our BaseWatch screen provides the answer to this question. BaseWatch selects stocks that have begun their retracement up the right side of their base and are already showing moderately strong technical characteristics.

To illustrate the point, here's a sample of a few top-performing stocks that we selected in BaseWatch before they made our cup-with-handle list and made very acceptable gains after breakout. Had they been selected from BaseWatch, the returns could have been even better, depending on your individual sell rules.

These stocks were deliberately chosen for their outstanding gains to illustrate a point, but they are also stocks that could very easily have been selected for purchase on the dates shown. They all had very good CET scores (at least CET Zone 3) and solid fundamentals (CEF Zone 4). (Our zone system for grading technical and fundamental characteristics is described here).

As an example of a stock that never formed a handle but had outstanding returns, consider TZOO. TZOO moved so quickly it never qualified for any of our watchlists but was picked up by BaseWatch. This stock went from $15 to $105 in just 6 months but never paused long enough, nor retreated sufficiently, to make our watchlists. BUT, it did appear on BaseWatch on August 6 when it already had a very high CE of 15.03 and a near perfect CET of 6.38. It went on to gain 300%.

BaseWatch is accessed from the Mine for Candidates menu and there are powerful filtering options to refine your search for quality stocks, just as there are on our watchlist displays.