Please read this weeks top tip for a correction to last weeks report.

Market Summary

The markets continue to be focused on the probability that interest rates will continue to rise in the near to mid-term. Consequently, this week we saw a movement from stocks that are heavily dependant on capital borrowing to finance growth, which tend to be newer companies and technology stocks, towards more established larger market cap stocks that are considered better able to absorb higher interest rates. A fall in energy costs also helped the larger companies. The DJI gained 0.5% for the week while the S&P 500 slipped 0.44% and the NASDAQ Composite suffered most dropping 1.76%. Friday brought the first positive day of the week for the three major indexes as good news on the economy and the outlook for interest rates helped the markets regain some ground. Significantly more jobs were created in February than in January indicating that the economy is still growing. Inflation pressure from wages seemed well contained as average wages rose only slightly and unemployment rose also. More people looking for work increases the labor supply and means employers don't have to offer higher wages to attract workers. Bond yields and their affect on interest rates and their potential to suck capital from the equities markets continue to be a concern as the 10-year Treasury note rose to a yield of 4.76% on Friday.

In our continuing study of the NASDAQ market, this week we will look at a weekly chart and see that the index is somewhat precariously balanced and learn a little about our T/A (Technical Analysis) charts as well. We like to use 1 and 2 standard deviations for our BB bands because they show the extent of a stock's movement from its prior positions. Firstly, notice that the tightening of the bands is an indication that the direction of the market is becoming uncertain. This tightening is preceded by our market model issuing an exit signal and if the direction is resolved to the upside, it issues an enter signal. In case one, it quickly resolved itself to the upside and an enter signal was issued promptly. In case two, there was a fake to the downside before an upward resumption occurred. Case two illustrates that the primary trend following a band narrowing is uncertain and fakes both to the up and downside occur. As the January rally waned, we again issued an exit signal until the upward trend resumed. We now see a move to the downside and the possibility arises that the initial move upwards was a fake to the upside in a similar way to the case 2 fake to the downside.This is a round-about way of saying that the next move is hard to discern from here. We haven't discussed the dots on the chart, but they represent the PSAR values. A dot below the candle indicates that the preferred position is long while a dot above the candle indicates that the preferred position is short. Because of the way the PSAR is calculated, we can show you the PSAR for next week and that is the final dot on the chart. If the intraday low falls below 2240 next week then the PSAR will switch to short. However, our market model requires that there be five distribution days in fifteen sessions and the count currently stands at two, so there is still quite a lot of leeway before the model switches. The model has generally been a reliable tool to indicate when to enter and leave the markets, as our newsletter of 2/11/06, Using Market Signals for ETF Trading, demonstrated.

Coldwater Creek (CWTR) was the standout breakout of the week with a gain of 14.23% above its breakout price.

Update on combining Expected Gain and the Sell Assistant.

Last week we presented backtested data that showed exceptionally good returns when using our revised Expected Gain model to buy at the open following a confirmed breakout and using the Sell Alerts available under TradeWatch to sell at the open following a sell alert. Unfortunately the data inadvertently used the breakout price as the buy-at-open price which biased the results substantially to the upside. We regret the error and have run the analysis again and present the results below. While not as impressive, the results are still extremely good. {Note: the newsletter for 3/4/06 in the archive now contains the corrected data].

While re-running the analysis we noted that buying at the open when the price was 5% or more higher than the breakout price reduced the overall returns so we present two sets of results, one using no limit price and the other using a limit of 5%. For comparison, we show the results from last week using the breakout price as the buy-price.

An excel spreadsheet documenting these results is available here.

The Expected Gain after breakout is visible to subscribers and shown on the Recent Breakouts report. In the coming week we will add breakouts where the expected gain exceeds 75% to the TradeWatch lists and produce tracking reports similar to that for the Best Return list.

This analysis has also given us additional insights into how to improve our Sell Assistant and if successful, we will report on that next week.

If you think our service has great potential but you are too busy, or lack the technical analysis skills to apply our methods, you should consider talking to one of the investment advisors listed below.

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 support us, there is no additional charge to be listed here.