Weekly Newsletter 01/27/07
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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

This was a volatile week for the equities markets which made wide swings on Wednesday and Thursday as investors grappled with generally satisfactory earnings reports but mixed earnings forecasts, a continued slump in existing home sales, but a surprising pick-up in new home sales, rising oil prices, an economy that is stronger than expected and a Fed Futures market that has changed its view on when an interest rate cut is likely. The three major indexes lost ground but remain just positive for the year to date (see summary statistics below).

The economy is not slowing as expected, perhaps partly due to falling gas prices, which acts as an economic stimulus like a tax cut, continued full employment and strong wage growth. Durable goods orders rose in December, even after removing Boeing's aircraft sales, which indicates factories are likely to be busy meeting these orders in the near future. This implies the expansion could continue, raising the possibility that the Fed is more likely to raise interest rates than lower them. The Federal Reserve Open Markets Committee (FOMC) meets next week and their press release, due Wednesday at 2:15, will be interesting for how it deals with the changed economic outlook. Recently, the FOMC has said that a slowing economy was likely to bring inflation down and they have opted to keep rates steady. Now, with the economy not slowing as expected, and inflation remaining well above their target range, they are likely to be more hawkish. The expectation is that they will keep rates unchanged, for now, but the hoped for interest rate cut, that has kept shares prices high, is now a discounted. In fact, the Fed Futures market puts the chance of a rate cut at less than 10% by July and not an even bet until December.

When the markets have a volatile week such as this last one, it is instructive to look at a weekly chart which smooths out the 'noise'. The NASDAQ weekly chart shows volume increased this week and the lower close indicates that the index is under distribution which is consistent with our market signal remaining at 'exit'. Note also that the 50 day moving average has provided support over the last 5 weeks, but failed to do so this week.

The weekly charts for the DJI and S&P 500 also show distribution. While they remain above their 50 day moving averages, it appears that each could test support at that level soon. Overall, we feel very comfortable with our current market 'exit' signal.

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There were 35 breakouts this week which comfortably beat the market averages with a gain of 1.5% at week's end.

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 New Features this Week Additional Value that we added this week

The Technical Analysis Charts were enhanced to include two new features:

  1. The period for charts was extended to a maximum of 5 years. The previous maximum was 3 years.
  2. The PSAR (Parabolic Stop and Reverse) value was added to the values displayed when the mouse is rolled over a candlestick. This is only effective if the PSAR is selected as one of the four possible technical indicators.
This Week's Top Tip Tips for getting the most out of our site

No Tip This Week

There is no tip this week. We are continuing to work on a shorting strategy as we think this will become more important in coming weeks. Although the Head and Shoulders Top Algorithm is quite successful at selecting stocks that will breakdown, we are continuing our search for an algorithm that will provide an effective cover strategy.

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.

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 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Market1
Signal
Dow 12487 -0.62% 0.19% enter
NASDAQ 2435.49 -0.65% 0.84% exit
S&P 500 1422.18 -0.58% 0.27% enter
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
S&P 500
-0.58 %
S&P 500
-2.49 %
NASDAQ Composite
0.51 %
NASDAQ Composite
0.84 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Major Airlines Major Airlines Tobacco Products, Other REIT - Healthcare Facilities
 Most Improved Industry (by change in technical rank2)
Aluminum
+ 54
Aluminum
+ 99
Long Distance Carriers
+ 213
Long Distance Carriers
+ 210
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 35 22 4.33% 1.51%
Last Week 16 26.31 3.6% -0.19%
13 Weeks 342 28.46 11.53%
3.25%
Sector
Industry
Breakout Count for Week
COMPUTER SOFTWARE & SERVICES
Business Software & Services
3
FINANCIAL SERVICES
Closed-End Fund - Equity
3
DIVERSIFIED SERVICES
Business Services
2
LEISURE
Restaurants
2
TELECOMMUNICATIONS
Communication Equipment
2
TELECOMMUNICATIONS
Wireless Communications
2
BANKING
Savings & Loans
1
BANKING
Regional - Southeast Banks
1
CHEMICALS
Chemicals - Major Diversified
1
COMPUTER SOFTWARE & SERVICES
Security Software & Services
1
CONGLOMERATES
Conglomerates
1
DIVERSIFIED SERVICES
Personal Services
1
DIVERSIFIED SERVICES
Staffing & Outsourcing Services
1
DRUGS
Drugs - Generic
1
DRUGS
Biotechnology
1
ELECTRONICS
Semiconductor - Memory Chips
1
FINANCIAL SERVICES
Closed-End Fund - Debt
1
INSURANCE
Property & Casualty Insurance
1
MANUFACTURING
Metal Fabrication
1
MANUFACTURING
Industrial Electrical Equipment
1
METALS & MINING
Industrial Metals & Minerals
1
REAL ESTATE
REIT - Diversified
1
RETAIL
Apparel Stores
1
TELECOMMUNICATIONS
Telecom Services - Foreign
1
UTILITIES
Electric Utilities
1
UTILITIES
Diversified Utilities
1
WHOLESALE
Medical Equipment Wholesale
1
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
Category
Symbol
Company Name
Expected Gain1
Best Overall IGTE Igate Corporaion 103
Top Technical HALL Hallmark Financial Services Inc 66
Top Fundamental CTSH Cognizant Tech Sol Cp A 32
Top Tech. & Fund. CTSH Cognizant Tech Sol Cp A 32
1This is the gain predicted by our Expected Gain model if the stock breaks out. Expected Gains for all cup-and-handle stocks are published on our site.
 Top Second Chances Stocks that broke out this week and are still in buyable range
Category
Symbol
Company Name
Expected Gain1
Best Overall MCDTA Mcdata Cl A 98
Top Technical CVA Covanta Holding Corp 46
Top Fundamental CHL China Mobile Ltd 46
Top Tech. & Fund. CHL China Mobile Ltd 46
1This is the gain predicted by our Expected Gain model after the stock has broken out which uses the volume on breakout as a predictive term. Because the model variance is +/- 38% the expectation can be negative.

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