BreakoutWatch.com Weekly Review

You are receiving this email because you are or were a BreakoutWatch.com 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.

Market Summary

Weekly Breakout Report

Top Breakout Choices

Top 2nd Chances

New Features

Tip of the Week

Prior editions of this newsletter with our valuable Tips of the Week are available here.

Weekly Commentary

Market Summary

The promising outlook that we saw for the markets at least through to the election took a hit this week as evidence of a sharp slowing in economic activity brought fears of a looming recession. The Fed's decision to hold interest rates steady on Wednesday was in-line with the markets' expectations, but a sharp downturn in economic activity in the mid-Atlantic region reported by the Philadelphia Federal Reserve on Thursday brought a wave of profit taking that continued on Friday. This left the major indexes below water for the week. The DJI lost 0.46%, the NASDAQ Composite dipped 0.75% and the S&P 500 lost 0.39% after flirting with a new 5-year high on Wednesday. The market's are now much more concerned about the prospects of a recession than they were just a few days ago, when the concern was more with inflationary pressure causing the Fed to raise rates further. Oil has dropped nearly $20 a barrel from its high, but the focus now is on mounting evidence of a slowing economy and some are now predicting a reduction in interest rates early next year. Treasury yields are also causing concern as the 30-year bond yield has fallen in the last week. It is just above the 3-month yield, but below the 6-month. A further fall below the 3-month level would signal yield inversion and definitely add to investors fears of a recession. Colin Twiggs reports in his trading diary that the chance of a recession in the next four quarters has increased to 35%. This is higher than it has been over the last five years but below the 50% tipping point.

Despite these fears, the NASDAQ looks technically sound although it did close below its 200 day average on Friday. A close below the PSAR (the dotted line) early next week would coincide with a failure of support at the 9/5/06 high and confirm a short term correction. The distribution day count is at 3 over the last 13 days. Two of these will drop off the count in the next two sessions, so unless we get two distribution days on Monday and Tuesday of next week, our market signal will remain at enter for the NASDAQ.

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New Features this Week

Additional Value that we added this week

There were no new features added this week.

This Week's Top Tip

Tips for getting the most out of our site

Tradewatch Buy at Open Simulations back to 2003

We continue to look at results from our Tradewatch simulation tool this week. Last week, we found some very promising results when combining the Buy at Open strategy with the standard Sell Assistant model and staying out of the market when any of our market signals were at exit. We also introduced a tie-breaker option to use when there were more buy opportunities than available portfolio positions. A subscriber, David C., pointed out that there were too few trades from which to draw conclusions about the best choice of tie-breaker, so this week we have backtested the simulation to our earliest available data in April, 2003.

Firstly, allow me to remind you of the options available through the Portfolio Simulation screen.

We ran through all the options available on this screen for an opening capital of $100,000 from April 2003 through to Friday, September 22 for portfolio sizes from 2 to 25 positions and found the best returns occurred as follows:

# of Positions	Use Position Size Limit	Use Market Signal	Tie-Breaker	# of Buys	# of Sells*	# Times Tie- Breaker Used	Final Portfolio Value	Overall Return %	S&P 500 Return %
4	no	yes	Exp. Gain	62	56	20	849,231.90	749.23	55.01
3	no	yes	Lowest Price	48	42	16	834,167.03	734.17	55.01
4	no	yes	Industry Rank	62	56	18	820,322.94	720.32	55.01
4	no	yes	Lowest Price	62	56	18	811,671.60	711.67	55.01
2	no	yes	Industry Rank	32	28	2	786,917.05	686.92	55.01
3	no	yes	RS	48	42	16	781,361.28	681.36	55.01
5	no	yes	Industry Rank	77	70	13	777,718.44	677.72	55.01
3	no	yes	Exp. Gain	48	42	16	767,071.11	667.07	55.01
2	no	no	CET	81	78	11	765,604.37	665.6	55.01
* If several buys were made of the same stock, a sell can close out more than one position

Due to the computing resources needed to run the simulation over this period of, we can't make the data prior to 2005 available, but you can get a spreadsheet of results for all combinations here. You can see the actual trades the simulation made for the top returning combination here.

For comparison, the ten worst returns were for the following combinations:

# of Positions	Use Position Size Limit	Use Market Signal	Tie-Breaker	# of Buys	# of Sells*	# Times Tie- Breaker Used	Final Portfolio Value	Overall Return %	S&P 500 Return %
2	no	no	Lowest Price	20	19	2	32280.25	-67.72	56.38
2	no	no	Highest Price	20	19	2	32280.25	-67.72	56.38
2	no	no	CE	20	19	2	32280.25	-67.72	56.38
2	no	no	CET	20	19	2	32280.25	-67.72	56.38
2	no	no	CEF	20	19	2	32280.25	-67.72	56.38
2	no	no	RS	20	19	2	32280.25	-67.72	56.38
2	no	no	Exp. Gain	20	19	2	32280.25	-67.72	56.38
2	no	no	Industry Rank	20	19	2	32280.25	-67.72	56.38
2	yes	no	Highest Price	15	14	1	40851.64	-59.15	56.38
2	yes	no	CEF	15	14	2	40851.64	-59.15	56.38
* If several buys were made of the same stock, a sell can close out more than one position

The conclusions I draw from this are that:

the TradeWatch Buy at Open strategy can be very rewarding when combined with the Sell Assistant
returns are best when the number of portfolio positions is kept small - 4 appears to be optimum
returns are best when Expected Gain is used as the tie-breaker
not buying when the market signal is at exit improves returns

This tool is still undergoing testing and enhancement. I encourage you to try different options, and if you find any errors then please let me know. Also, let me know what you think of this tool and how to improve it.

Investment Advisors Using our Service

TradeRight Securities, located in a suburb of Chicago, is a full services investment management company and broker/dealer. They have been a subscriber, and user, of BreakoutWatch.com for some time now. They practice CANTATA and use Breakoutwatch.com as a “research analyst”. You can learn more about TradeRight Securities at: www.traderightsecurities.com. If you’re interested in speaking to a representative, simply call them toll-free at 1-800-308-3938 or e-mail gdragel@traderightsecurities.com.

PivotPoint Advisors, LLC takes a technical approach to investment planning and management. A breakoutwatch.com subscriber since May, 2004, they use breakouts, market signals, and now TradeWatch to enhance returns for their clients. Learn more at http://pivotpointadvisors.net or contact John Norquay at 608-826-0840 or by email at john.norquay@pivotpointadvisors.net.

Note to advisors: If you would like to be listed here, please contact us. As a service to those who subscribe to us, there is no additional charge to be listed here.

Get a 14 day Trial of our premium 'Platinum' service and TradeWatch for just $9.95 and if you subsequently subscribe to any subscription level we will credit your $9.95 to your subscription.

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Market Summary

Overview of market direction and industry rotation

Index

Value

Change Week

Change YTD

Market¹Signal

Dow

11508.1

-0.46%

7.38%

enter

NASDAQ

2218.93

-0.75%

0.62%

enter

S&P 500

1314.78

-0.39%

5.33%

enter

1 Week	13 Weeks	26 Weeks	Year-to-Date
Best Performing Index
S&P 500 -0.39 %	NASDAQ Composite 2.1 %	NASDAQ Composite 2.69 %	Dow Jones 7.38 %
Best Performing Industry (by average technical score over each period)
1 Week	3 Weeks	13 Weeks	26 Weeks
Food-Dairy Products	Food-Dairy Products	Oil & Gas-U S Integrated	Electr-Laser Systems
Most Improved Industry (by change in technical rank²)
Electr-Parts Distrib + 50	Retail-Discount/Variety + 65	Healthcare-Hospitals + 136	Food-Meat Products + 169
Charts of each industry rank and performance over 12 months are available on the site

¹The Market Signal is derived from our proprietary market model. The market model is described on the site.
²The site also shows industry rankings based on fundamentals, combined technical and fundamentals, and on price alone (similar to IBD). The site also shows daily industry movements.

Weekly Breakout Report

How confirmed breakouts performed this week

# of Breakouts		Period Average¹	Max. Gain During Period²	Gain at Period Close³
This Week	39	30.69	4.12%	-0.47%
Last Week	68	28.69	5.1%	0.72%
13 Weeks	419	31.54	9.2%	1.24%

Sector

Industry

Breakout Count for Week

Real Estate/ REIT

Real Estate-REIT

Computer

Computer-Services

Computer Software

Comp Software-Enterprise

Healthcare

Healthcare-Med/Dent Services

Insurance

Insurance-Prop/Casualty/TItl

Telecomm

Telecomm-Equipment

Aerospace & Defense

Aerospace & Defense-Equip

Business Services

Business Svcs-Staffing

Business Services

Business Svcs-Misc

Chemical

Chemical-Fertilizers

Computer

Computer-Networking

Computer Software

Comp Software-Desktop

Electronics

Electr-Connectors/Components

Electronics

Electr-Misc Products

Healthcare

Healthcare-Products

Internet

Internet-Software

Leisure

Leisure-Toys/Games

Machinery

Machinery-Industrial

Media

Media-Diversified

Oil & Gas

Oil & Gas-Prod/Pipeline

Paper

Pollution Control

Pollution Control-Equip

Retail

Retail-Discount/Variety

Retail

Retail-Department Stores

Retail

Retail-Misc/Diversified

Special

Special-Market/Tracking Funds

Textile

Textile-Apparel Mfg

Transportation

Transportation -Airlines

Utility

Utility-Gas

Utility

Utility-Water

¹The average number of breakouts in each week over the previous 13 weeks.
²This represents the return if each stock were bought at its breakout price and sold at its intraday high.
³This represents the return if each stock were bought at its breakout price and sold at the most recent close.

Top Breakout Choices

Stocks on our Cup-and-Handle list with best expected gain if they breakout