Tradewatch Day Trade Strategy Returns a Conservative 77% year-to-date - see this weeks tip

Market Summary

There was clearly a change of mood in the markets this week as investors grappled with economic news which showed that the rate of economic contraction may be higher than is consistent with a soft landing, inflation at the wholesale level is still a present danger, retail sales, as forecast by Wal-Mart are flagging, and the housing market, the engine of the bull market, continues to fall. Employment is high so employers are increasing wage rates to attract or retain workers while at the same time productivity is flat, adding to inflationary pressures. It all adds up to bad news for the markets as they look to the prospects for fourth quarter earnings. For the week, the DJI slipped 0.86%, the NASDAQ Composite lost 0.84% and the S&P 500 gave up 0.95%.

We have always maintained that current and annual earnings were just a rear view mirror and now that the third quarter earnings season is mostly behind us, this is a time to pay attention to technical indicators. For the DJI and S&P 500 this was the first week of losses in six weeks and it came on lower volume so the immediate signs are that we are in a consolidation and the upward trend is still predominant. I venture to say though that the bad news summarized above will continue to weigh on these indexes in the short term. The NASDAQ situation looks more tenuous. A head and shoulders pattern was completed this week as the index fell through its neckline on heavy volume. While it is too soon to signal that its time to move totally to cash (we have only had three distribution days in the last fifteen sessions) my sense is that it is time to take some money off the table.

For a more detailed analysis of the underlying factors that will affect the markets in the coming weeks, you may find Roubini's Global Economic Blog interesting. Also, the yield curve continues to be inverted and Colin Twiggs reports that the risk of recession as measured by the Wright model has increased to 41% in the next four quarters.

The number of breakouts fell to 35 this week, but by week's end they had gained an average of 1.77%, once again comfortably beating the markets.

TradeWatch Day Trade Strategy gives Minimum 77% Return

I was asked by a subscriber to add the day's closing price to the TradeWatch Day Trade history report. That's now been done and I'll add the closing price at the end of the Swing Trade period (2 weeks) next week.

The results show that while the average return to the intraday high is a very impressive 2.74%, if you wait to sell at the close, then the return drops to 0.63%. That's still not bad as the following analysis shows.

There were 183 trades year-to-date. The maximum number of trades per day was four and the average 1.5. The number of days on which a trade was made was 123.

For the sake of simplicity, suppose a capital of $20,000 and one trade is made per day, then

This will be reduced somewhat by brokerage but will still be quite a nice return and with reinvestment of the return each day this would be substantially higher

The trade is simple to initiate, because we provide a buy stop to give to your broker the night before. If your broker will execute a 'market on close' order, then the trade is simple to close also. Otherwise you need to give the order just before the close.

If you are able to monitor the trade during the day, then it should be possible to cut your losses sooner and also get closer to the average intraday high. Assuming you could achieve an average of 2% return (72% of the average daily high) then the return would be:

This last number is somewhat hypothetical, of course, but easily within the bounds of possibility, whereas the 77% return number is accurate, year-to-date, and the reality should be somewhere between the two.

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.

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