Although the NASDAQ Composite trended higher during the week and closed with a small gain, Friday's profit taking ahead of earnings season left our trend indicator pointing down, along with that for the S&P 500. The NASDAQ is in an ascending triangle pattern but volume remains below average indicating dwindling support for an upside breakout.

No new features this week.

MTC Breakout Returns Disappoint - New Recommendation

Early in 2010 we introduced our "Meets Target Criteria" (MTC) strategy. At the time backtesting of the strategy showed significantly better returns for MTC breakouts than all CwH breakouts. (see Recommendations for Selecting High Performance Breakouts 

As a reminder, our MTC strategy suggests buying CwH breakouts when breakout day volume reaches 2.25 times average daily volume for CwH breakouts that meet the MTC criteria on breakout day. The MTC criteria are:

• Average daily volume >= 100,000
• Breakout price >= $6
• Relative Strength (RS) Rank >= 92
• CANTATA Fundamental Criterion #2 (CEF2) >= 0.6
• CANTATA Fundamental Criterion #3 (CEF3) >= 0.6

The strategy also suggests:

• Do not open a new position if our NASDAQ Market trend signal is down
• Sell if the price drops 8% or more below the breakout price (BoP Stop Loss)
  
• Sell if the price drops by 8% or more from the highest intra-day price to date
• Take a profit at 25% gain

However, over the last year our MTC breakouts have underperformed compared to all CwH breakouts.
Our CwH Backtest tool (accessed from Evaluate > Analytical Tools) shows returns for MTC breakouts yielded only 19.4% while all CwH breakouts yielded 48.3% (using the default backtest parameters).

We have always found that Relative Strength Rank is the most important determinant of future performance and running the backtest on all CwH breakouts with a filter on those with an RS Rank equal to or greater than 92 lifts the backtest's 12 month return to 67.7%.

I therefore suggest ignoring the MTC indicator and instead limit trading to stocks with an RS Rank >= 92.