As a reminder to new subscribers, we follow the NASDAQ Composite Index each week because historically we have found most breakouts come from stocks listed on the NASDAQ exchange. The index is still moving higher although its momentum is slowing compared to the larger cap indexes. You will see from the chart that the index is in a "squeeze", showing that volatility has fallen and the trend is mainly sideways. From a squeeze, there can be a breakout either to the upside or downside so caution is indicated. the FOMC minutes released this week indicate that the Fed's QE policies will continue, at least until unemployment falls to 6.5%, so the probability is that the trend will strengthen again to the upside.



The star breakout of the week was Universal Insurance Holdings (UVE) which broke out of a cup-with-handle pattern on Thursday and gained over 16% intraday. It closed Friday with a 14% gain. More on this below.

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More on Handle Squeezes

Last week I suggested that cup-with-handle alerts issued when a stock is, or has been, in a squeeze in the handle were highly reliable. If you took this advice, then you would have made a handy gain on UVE as mentioned above. On the chart below, you will see three black bars just before Thursday's breakout, indicating that the stock was in a squeeze. The blue and red bars show the momentum strength. Notice that just before the breakout, the momentum was positive and increasing.



Despite this positive outcome for the squeeze indicator, I must back away from the advice given last week. That was based on performance this year but it has not stood up to examination over a period going back to January 2008. An alert when a squeeze is in play is not as reliable as I thought and should be used with caution. That said, I am still interested in the possibilities of using the squeeze indicator and research will continue.