Market Summary

The market is showing considerable strength. Despite several negative influences which include weakening home sales, slowing GDP growth, mixed earnings results, cautious company forecasts, rising energy costs and an uncertain geopolitical situation, the markets made solid gains this week. Investors seem to be increasingly confident that after one more quarter point interest rate increase the Fed will signal that further rate increases are unlikely for the time being. If so, that will remove a source of skittishness that has dogged the markets for several weeks. The major indexes made solid gains on well above average volume. The DJI rose 2.25%, the NASDAQ Composite gained 2.52% and the S&P 500 added 1.76%. The indexes set new intra-day highs each day, indicating that there is an underlying bullish sentiment, despite the mild distribution day on Wednesday. The biggest gains came on Thursday and Friday with some mild profit taking at the end of the session on Friday. The focus next week will be on the Open Markets Committee meeting on Tuesday and the State of the Union address that evening.

We usually focus on the state of the NASDAQ market because that is the market of most interest to growth stock investors. Lately we have looked at the long term view, but this week we will look at the action since the start of the year using our equivolume market chart which is published daily and succinctly summarises the short term influences on the health of the market.

The chart shows that volume has been generally well above average since the start of the year indicating a strong institutional interest in the markets. (Volume is indicated by the width of the bar and the multiple of average volume is shown below the bar). There have been only two distribution days since the start of the year but seven accumulation days. After reaching a four-year high on January 11, the NASDAQ retreated to consolidate gains and take the measure of the corporate earnings season but the index now seems on track to test resistance at the January 11 level of 2333 in the next few days.

The number of successful breakouts jumped to seventy-five this week with many stocks making double digit gains. The details are reported each day on our Recent Breakout report. Some of the standout successes of the week were EXP up 28.7%, KLIC up 12.32% and CYBS up 11.59%. The Finance sector contributed most breakouts with a tally of five.

Since our TradeWatch service came off beta test at the start of the year, stocks on our best return list are averaging a 13.10% gain. There is more detail in this weeks Top Tip. The average gain on all open positions is 16.13% since beta testing began.

Machinery-Construction/Mining was our top performing industry on a technical basis. Each day we publish current industry rankings based on technical and fundamental criteria.

Using our service when you don't have real time access to the markets

Our email alerts and real time alert monitor are excellent tools for subscribers who can access the markets while they are open. However, subscribers who don't have access to the markets in real time have always faced a dilemma: should they place an order with their broker before the markets open based on our watchlists or should they wait until a breakout is confirmed in our end-of-day reports before making a purchase. If you place a buy-stop order at the breakout price before the market opens, you risk owning a stock that did not meet the necessary breakout volume and missing other strong breakouts. If you wait until the breakout is confirmed, then you risk buying above the breakout price and giving up some of the potential gain.

The TradeWatch 'Swing Trade' and 'Maximum Return' lists are designed to address this dilemma by listing only those stocks that have a higher than average probability of breakout and by suggesting a buy-stop-limit order for each stock. (A buy-stop-limit order defines a minimum and maximum price you will pay for a stock which protects you if the stock does not rise to the 'stop' level or cannot be filled below the 'limit' level because of a gap-up over the limit level.) We list the buy-stop price and suggest setting the limit 10c above the stop price.

Since the start of the year, when the TradeWatch service came off beta-test, five stocks were buyable on our Maximum Return list using the suggested buy-stop-limit prices. These have since gone on to gain an average 13.1% gain over their buy-stop price - almost three times that of the NASDAQ, over four times that of the S&P 500 and over seven times that of the DJI.

An important feature of the Maximum Return list is that the buy-stop price is set above the breakout price. This is because we have found that if stocks have all the characteristics necessary to make the list AND their price rises to at least 2.5% above the breakout price, then the probability of them failing (that is falling by 8% from the buy price, is very low). In other words, there is a high probability that these stocks will go on to make a good return. In our backtesting we found that stocks on the Maximum Return list went on to give an average 40% return.

Investment Advisors Using our Service

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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.