The NASDAQ Composite is testing resistance at 3195. The index closed just 3 points below that level on Friday, and seems to have stalled with its first weekly loss of the year. It increasingly looks as though sequestration will go into effect, which economists estimate will halve the GDP growth rate. While the connection between the markets and GDP is a tenuous one, the risk must be more to the downside than the upside.

While the number of breakouts continues to be below the thirteen week average, they continue to perform quite well with an average gain for the week of 3%.

No new features this week.

Recommended Buy Criteria - Buy at Open

Last week we ran a simulation of the CwH Backtest tool to seek the most profitable buy criteria since June, 2012 using the Buy on Alert strategy. This week we repeat the exercise for the Buy at Open strategy. The buy at open strategy is for those who cannot react to intra-day alerts and instead do their trading at the next open based on the breakouts  that occurred during the day. This generally means placing an overnight order that will be executed the next day.

The simulation was done for 4 positions (meaning that 1/4 of available cash was used for each buy) using all combinations of criteria in the following ranges:

• BoP Stop Loss %: 5 to 10 in 1% increments
• Trailing Stop: 2 to 8 in 1% increments
• Min. Vol. to Adv Ratio %: 1.25 to 2 in 0.25% increments
• Confirmation Vol. Ratio %: 1.25 to 2.5 in 0.25% increments
• Top Industry percentile: 25 to 50 in 1 percentile increments

Other criteria were held at their default values: RS 92, minimum BoP:$6, Minimum ADV 100,000, use Market Trend, Target Gain 100%.

The criteria that gave the best results were quite similar to those obtained for the buy on alert strategy. The only exception was that the industry selection filter was more restrictive by requiring that the industry be in the top 27% of industry rankings.

• BoP Stop Loss %: 5%
  
• Trailing Stop: 7%
• Min. Vol. to Adv Ratio %: 1.25
• Confirmation Vol. Ratio %: 1.5 (doesn't really apply with this strategy)
  
• Top Industry percentile: 27
  

The 4 position strategy since June 1, 2012 provided a 31.2% gain - slightly less than the 46% gain obtained with the buy on alert strategy but still better than the 19% gain in the S&P 500 over the same period.