Market Summary

70% of Breakout Alerts Sucessful in July

Smaller cap stocks, as represented by the Russell 2000 index, continued to outperform the broader market with an overall gain of 0.82% for the week while the big cap DJI lost ground and the S&P 500 and NASDAQ Composite could manage only small gains. This was the fourth successive positive week for the index which had its lowest close on July 3 and has since recorded eight accumulation days compared to three distribution days. The Russell 2000 is easily the best performing index of the year with a loss of only 6.51%, about half of the NASDAQ's while the DJI and S&P 500 have slipped over 14%. The Russell 2000 is also the only index of the four we track to be above it's 50 day moving average.

During July we issued 111 breakout alerts and 110 of these were for Russell 2000 stocks. Of these a remarkably high 77  (70%) were successful. (A breakout alert is considered successful if the stock closes above the breakout price on at least 1.5 times average volume). As the weekly breakout statistics below show, average  weekly gains (from the breakout price to the Friday close) have averaged over 3.7%, far exceeding gains in the broader market.

In economic news, the Bureau of Economic Analysis reported that GDP grew by 1.9% in the second quarter in real terms. This was less than expected but also seems to be a number manipulated to reinforce the Administration's argument that we are not in a recession. To reach this number they took the dollar (nominal) growth of GDP, just 3%, and applied a price deflator of 1.1%. In other words, they implied that inflation is only running at 1.1% per annum. This defies credibility as in Q1 they used an also suspiciously low deflator of 2.6% . In the same report the BEA revised 4th quarter growth down to -0.2% and Q1 growth to 0.9%. We can expect further downward revisions in the future and will likely eventually learn that the recession started in Q4, 2007, although this revelation may be postponed until after the election :).

Focus on Small Cap Stocks