Oil price rises and their reciprocal effect on the dollar continued to hold the markets on a string this week. When oil prices retreat, the markets gain and when they rise, the markets fall. Rising oil prices threaten higher inflation, which raises business costs and also interest rates, while the falling dollar could cause foreign investors to 'rebalance' their portfolios to the disadvantage of the US. Consequently, while the economy appears healthy, investors are cautious and this caution caused the markets to close lower this week: the DJI lost 1.5%, the S&P 500 1.8%, and the NASDAQ 1.4%. On Wednesday, the NASDAQ suffered its only distribution day for the week, but that was sufficient to cause our market model to signal an exit from this market. With world demand for oil expected to rise this year, it is difficult to see how the oil factor can be removed from consideration, and the dollar is likely to remain under pressure with the US trade deficit continuing to grow and no prospect of long term deficits being diminished. To counteract these external pressures on the markets we need some good news from the home front. Several large companies will report earnings in the coming week and a strong showing could reverse the short term downward trend. It is worthwhile noting that although we are in a short term correction, the market signals for the DJI and S&P 500 remain positive and the overall trend is still upwards. Short term corrections can be postive as they allow new patterns to form from which new leaders can emerge.

The number of breakouts fell dramatically to only 16 this week, with the average breakout losing 1% by the end of the week. A look at the breakout Report shows that stocks with strong technicals, but relatively weak fundamentals, are being successful. Of the 16 breakouts, only one rated a '4' for fundamentals on our CE Zone map. Examples are OTIV, which gained 10.3% after breakout with a CE Zone of 4-2 (our CE Zone methodology is described here) and NTE which gained 9.6% after breakout with a CE Zone of 4-3. While breakouts did not perform well this week, they still beat the markets. Overall, the average rate of return is still 58%, even allowing for an 8% stop loss, and 78% of breakouts gain more than 5%. In our Top Tip this week, we answer a subscriber's question about the performance after breakout from a high handle.

We issued 20 alerts based on our new ShortsaleWatch list this week of which 14 closed down for the week. SNDA lost 9.4%, VCLK 7.2% and PMTC 5.3%.

Reflecting the continuing rise in oil prices, Oil and Gas continued to be the best performing sector, as it has been for at least the last 26 weeks.

Breakout Performance from High Handles

This analysis contained errors and has been withdrawn. t was corrected in the newsletter of 03/19/05.