Market Summary

Financial institutions have so far acknowledged only about a quarter of the losses they are ultimately expected to bear. The failure of IndyMac Bank is likely to be followed by further bank failures as home prices continue to fall and bad mortgage loans continue to accumulate. The housing market will continue to fall into next year, and possibly beyond, leaving many homeowners and ex-homeowners feeling impoverished. Energy prices will remain high although they will fall slightly as demand falls and if middle east tensions ease, but higher energy costs will hurt Detroit car makers further and sap consumer discretionary spending.

While the overall market outlook is gloomy, there will be opportunities to make profits in the current rally and some stock breakouts will continue to be highly rewarding. See this weeks Top Tip for an example of how to select stocks that have performed well since the downturn began last October.

When you run a backtest on your filters  in the cup-with-handle watchlist, the results table shows the number of stocks selected by your filters with a 'list' link beside it. Clicking that link brings up a list of the stocks found by your filters. We hav enow added a 'drawdown' column to that list showing the maximum drawdown before the eventual maximum intraday gain was achieved. An example is shown below.

Using Filters to Find Top Quality Breakouts in a Bear Market

One of our subscribers has discovered a simple filter for our Cup-with-Handle watchlist that has produced excellent returns recently. The filter is to select breakouts that have a very high Relative Strength Rank (>= 95) and moderately to good fundamental strength (CEF >= 7).

Applying this filter to all breakouts since last October, when the bear market began, gives 31 breakouts with an average return after breakout to an intraday high of 28.4%. This is almost double the average return of 14.9%. The best part about this filter is that there was only one 'failure' out of the 31 stocks. (A stock is classed as a failure if it fails to rise by 5% above its breakoutprice and then falls to a stop-loss level of -8%). Once the stock has gained at least 5%, then we calculated the maximum drawdown necessary to allow the stock to reach its maximum. 

Symbol	Breakout Date	Max Gain %	Draw Down % before Max.
URRE	10/12/07	URRE Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.3 48.56	URRE Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.3 6.6
URRE	10/26/07	URRE Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.3 33.96	URRE Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.3 6.6
URRE	11/06/07	URRE Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.3 19.25	URRE Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.3 22.33
SDTH	12/06/07	SDTH Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.18 84.48	SDTH Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.18 10.02
PTT	12/06/07	PTT Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 9.03 22.52	PTT Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 9.03 10.83
WBD	01/03/08	WBD Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 8.3 5.62	WBD Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 8.3 2.58
HOGS	01/15/08	HOGS Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 8.88 8.18	HOGS Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 8.88 19.72
VMSI	02/04/08	VMSI Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 8.84 0.29	VMSI Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 8.84 0.16
HQS	02/07/08	HQS Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 8.2 28.16	HQS Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 8.2 3.61
CLF	02/08/08	CLF Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.49 129.19	CLF Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.49 17.16
FLS	02/28/08	FLS Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.41 6.36	FLS Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.41 13.74
FEED	03/12/08	FEED Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.85 75.54	FEED Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.85 22.44
LNN	03/19/08	LNN Filter Logic Filter Value Watchlist Value rs >= 95 99 CEF >= 7 7.73 61.22	LNN Filter Logic Filter Value Watchlist Value rs >= 95 99 CEF >= 7 7.73 4.18
FEED	04/11/08	FEED Filter Logic Filter Value Watchlist Value rs >= 95 99 CEF >= 7 7.2 54.98	FEED Filter Logic Filter Value Watchlist Value rs >= 95 99 CEF >= 7 7.2 22.44
ASIA	04/14/08	ASIA Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.59 16.46	ASIA Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.59 10.87
SOHU	04/16/08	SOHU Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 7.65 73.92	SOHU Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 7.65 10.11
GTI	04/23/08	GTI Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.03 42.68	GTI Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.03 3.91
SOHU	04/25/08	SOHU Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.65 54.82	SOHU Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.65 10.11
ARD	04/28/08	ARD Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 8.43 3.89	ARD Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 8.43 10.8
GTI	05/01/08	GTI Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 7.03 35.17	GTI Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 7.03 3
CNQR	05/01/08	CNQR Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.08 11.41	CNQR Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.08 5.34
CEDC	05/01/08	CEDC Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.95 21.65	CEDC Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.95 6.23
GSI	05/07/08	GSI Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.77 9.06	GSI Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.77 0
SNHY	05/12/08	SNHY Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.44 9.99	SNHY Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.44 5.87
RIMM	05/12/08	RIMM Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.35 9.04	RIMM Filter Logic Filter Value Watchlist Value rs >= 95 98 CEF >= 7 7.35 8.72
GNK	05/12/08	GNK Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.7 5.51	GNK Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.7 2.22
EBS	05/28/08	EBS Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 8.18 26.27	EBS Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 8.18 11.79
NR	06/03/08	NR Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.68 8.24	NR Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 7.68 4.14
DYII	06/10/08	DYII Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.1 16.24	DYII Filter Logic Filter Value Watchlist Value rs >= 95 97 CEF >= 7 7.1 3.39
EBS	07/08/08	EBS Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 8.18 13.91	EBS Filter Logic Filter Value Watchlist Value rs >= 95 95 CEF >= 7 8.18 5.89
CAP	07/10/08	CAP Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 7.24 11.03	CAP Filter Logic Filter Value Watchlist Value rs >= 95 96 CEF >= 7 7.24 0