For the benefit of new subscribers, each week we focus on the NASDAQ Composite as it is from that exchange that most breakouts occur. The Russell 2000 is also a source of breakouts, but the index is more volatile (meaning more noise) than the NASDAQ, and so less useful as an indicator of market trend.

The NASDAQ market trend signal turned positive on August 29 and we can see from the chart that the index is trending upwards with higher highs and higher lows. At least it was until Wednesday this week, when the FOMC shattered expectations by failing to announce a new round of QE and issued a downbeat view of economic prospects. The markets inevitably over-reacted, as they usually do, by collapsing Wednesday afternoon and plunging on Thursday before Friday brought a relief rally. Where we go from here is anyone's guess, but there is a risk of a new head and shoulders top forming, as I've indicated on the chart with the red arc.

It can be argued that the NASDAQ is less subject to global influences than the larger cap indexes of the DJI and S&P 500 so we have included a chart of the relative strength of the NASDAQ vs the S&P 500 and you can see that since mid-August, the NASDAQ has been outperforming the S&P. The direction for the NASDAQ is therefore, more linked to domestic economic activity and a turnaround in the domestic economy would be positive for the NASDAQ even if the European crisis, with its threat the global financial system, continues.

The number of breakouts increased this week but the steep declines on Wednesday and Thursday left most of them under water or with only slight gains.

In contrast, taking a short position on our breakdown alerts would have netted over 9%.

You can see all recent breakdowns in our breakdown report on the site and also link to charts for each pattern.

Last week we introduced our new trend reversal signal (TRS) methodology and we have now substituted those trend reversal signals for the old market trend signals. We had considered keeping the two signals side by side as medium and short term trend indicators but have decided for simplicity to use the TRS only. They are shown on our daily market analysis page and email to subscribers and on this weekly newsletter below.

Our 'Stock Timeliness Checkup' tool (under the Analytical Tools menu) allows you to see how an investment in a particular stock would have fared had you entered and closed long positions in the stock based on the TRS. It can also be used to see how simply trading the index would have performed.

To demonstrate that the TRS indicators are an improvement over the old trend signals, we ran the Stock Timeliness Checkup tool using our symbol for the NASDAQ Composite (IXIC). Firstly, here's the results over the last five years using the old trend signals. Secondly, here are the results using the new TRS indicators.

As you can see, the new signals gave a 5% better return, that's a 15% improvement!.

So you can use the Stock Timeliness Checkup tool as a means to apply the TRS to any individual stock by using the appropriate index. The indexes for which we have TRS signals are the NASDAQ Composite (IXIC), Russell 2000 (RUT), S&P 500 (SPX), Dow Jones Industrials (DJI), and the Wilshire 5000 (DWC).