The NASDAQ continues to set new highs and generates strong breakouts as it does so. 8 out of the top 10 breakouts this week (see below) were NASDAQ listings. This is fairly typical and why in this section of the newsletter we focus on the NASDAQ Composite index.

A 1 year chart shows that the index will soon begin a consolidation of the gains of the last three weeks, although a few more days of gains are possible. The chart below shows the Keltner Channel (darker blue) overlaid with  the Bollinger Band (lighter) blue. Notice how whenever the  candlesticks move above the Keltner channel and touch the Bollinger Band a consolidation soon begins. As of Friday we are mid-way between the upper Keltner Channel and Bollinger Band and that is why I say a few more days of gains are possible.



Notice also that 7 out of the top ten came from our new "Squeeze Play" watchlist.

The "Squeeze Off" price (SOP) will be shown on cup-with-handle breakout alerts starting on Monday. Alerts will continue to be issued when the breakout price (BOP) is met so if you wish to wait for the SOP you will have  to monitor the stock  yourself following the breakout alert. This is discussed further below.

Our CwH Backtest  tool now includes an option to trade at the "Squeeze Off" price. Set the Buy Rule and BuyPrice as shown.

Trading CwH Alerts at Squeeze Off Price

You will recall from last week's newsletter that breakouts from a cup-with-handle pattern are more likely to be confirmed if the intraday price matches or exceeds the normal CwH breakout price (pivot). However, the Squeeze Off price (SOP) is usually (not always) above the pivot, so if you wait for the SOP you will  give up a little  of your potential  profit. Also, breakouts coinciding with the SOP are rarer, so your opportunities for profits are diminished.

Note also that there is no recommended minimum RS Rank, volume, Industry Rank or market trend requirement to trade the CwH alerts at the SOP price. My suggestion is once the position is open, hold it until it breaches a 7% trailing stop.

Our backtest data shows that under these conditions, since January 1, 2013 you would have traded just 4 position for an average profit of 14% with no losses and an overall gain of 65%.


In contrast, if  you traded CwH breakouts on BoP under the same conditions (that is with no minimums or market trend requirement) you would have had a similar return but with 8 wins and 11 losses for an average gain of 10.8%.


Conclusion

Trading CwH breakouts when they reach the Squeeze Off price gives fewer, lower risk trades, which may be  attractive to more risk-averse traders. For the more adventurous, I still recommend trading CwH alerts using the default parameters shown on the CwH backtest page.