Weekly Newsletter 04/04/14
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
Prior editions of this newsletter with our valuable Tips of the Week are available here.
 Weekly Commentary  

Our trend signals for the major indexes all turned down on Monday. Although the NASDAQ did attempt a recovery on Monday and Tuesday, average daily volume barely met the 50 day average indicating the recovery attempt was anemic. In hindsight, we can now see that the NASDAQ had formed a head and shoulders pattern (see chart) in March and broke through the neckline on March 26. Completion of the HST pattern is a bearish signal and is confirmed by our market signal downturn. The neckline was broken again on Friday. The chart also shows the index has broken support at the 50 dma level twice. Three breakthroughs are necessary before we consider this a bearish signal.

We suggest that when our market signal turns down, you refrain from taking new long positions. This can be confirmed by running our CwH Backtest tool and toggling the market signal option.

NASDAQ Comp.
 Weekly Breakout Report  

Our market signal can be used as a 'circuit breaker' telling you to stay on the sidelines. The weekly breakout report shows that although profitable breakouts can still be had, the odds turn against you as the average return turned negative this week. Note, however, that again the top intraday performers either came from our Squeeze Play watchlist (e.g.ANFI or were in a squeeze (e.g. RTRX). I've done research on which Squeze Play stocks and you can read about this below.

Breakouts for Week Beginning 03/31/14
Brkout Date Symbol Base Squeeze BrkoutOut Price Brkout Day Close Last Close Current % off BOP Gain at Intraday High
04/01/14 ANFI SQZ Y 17.74 18.41 18.75 5.69 13.3
03/31/14 RTRX HTF Y 21.00 21.20 19.03 -9.38 11.24
03/31/14 TTGT SQZ Y 7.14 7.21 6.71 -6.02 9.52
04/01/14 REI SQZ Y 15.66 15.88 16.3 4.09 7.79
04/01/14 NNBR CwH Y 20.34 20.63 20.73 1.92 6.64
04/02/14 MYGN CwH N 39.15 39.18 40.99 4.70 4.7
04/02/14 NNBR SQZ Y 20.73 21.69 20.73 0.00 4.63
03/31/14 VC SQZ Y 87.30 88.44 89.06 2.02 3.45
04/01/14 VRNT SQZ Y 47.63 49.26 46.45 -2.48 3.42
04/01/14 FSS CwH Y 15.31 15.32 15.48 1.11 3.4
03/31/14 TECD SQZ Y 60.61 60.96 61.57 1.58 3.27
04/01/14 APOL SQZ Y 34.34 35.16 31.86 -7.22 2.39
03/31/14 FN CwH Y 20.65 20.77 20.63 -0.10 2.28
04/02/14 BZT HTF N 32.36 32.49 33.02 2.04 2.04
04/01/14 H SQZ Y 54.21 55 53.91 -0.55 1.97
03/31/14 MDT SQZ Y 61.31 61.54 61.57 0.42 1.63
04/02/14 CRY SQZ Y 10.41 10.56 10.15 -2.50 1.44
03/31/14 DAN SQZ Y 23.18 23.27 22.71 -2.03 1.34
04/01/14 ESS SQZ Y 171.75 174 170.12 -0.95 1.31
04/01/14 MMP SQZ Y 71.84 72.26 71.54 -0.42 0.58
04/01/14 ZIV SQZ Y 39.89 39.97 39.75 -0.35 0.5
04/02/14 STSA CwH Y 34.44 34.44 33.26 -3.43 -0
Weekly Average (22 breakouts) -0.54 3.95

 
 New Features this Week Additional Value that we added this week

Probability of being 'In the Money" on Squeeze Play Alert

See below
 
This Week's Top Tip Tips for getting the most out of our site

Probability of being 'In the Money" on Squeeze Play Alert

Two weeks ago, I suggested that a Squeeze Play stock close to the upper Keltner Channel and with above average volume in the day it is placed on the watchlist, was more likely than others to breakout. This was based on subjective observation and I wanted to verify statistically if this is true.

Using a technique called "binary logistic regression" I looked at all squeeze Play stocks since January 2013 on which we did, or would have, issued an alert and which closed at or above the squeeze-off price (which is the breakout price on the squeeze play watchlist). What I found was that proximity to the squeeze-off price (BoP) was indeed very important, but volume was not. In order of importance I found that:

  • proximity to BoP very important
  • Momentum Slope next most important. This is logical because "momentum slope" is rate-of-change of momentum, that is, it is a measure of the extent to which momentum is accelerating
  • RS Rank is the next most important which is consistent with all previous work I've done on looking at the most important indicators of breakout success.
  • Next most important  was cup-depth - the deeper the cup then the more likely to close at or above BoP. This also seems logical as the further it has fallen, then the more it potentially has to gain.

This has enabled me to develop a model for the probability that a stock will close at or above the BoP if an alert is issued. probabilities range from 0 to 1 and a probability > 0.5 is considered to predict a breakout. On the data since January 2013, the model was successful over 71% of the time. This table summarizes the  model's predictive power:

Observed Predicted
Met or Exceeded BoP % Correct
No Yes
Met or Exceeded BoP No 22 512 4.1
Yes 10 1277 99.2
Overall %


71.3

The probability of a stock closing at or above  the BoP is now included on the Squeeze Play watchlist as the final column:

BoPProbability

Note: this is not the probability that volume will also be above the 50 day average, only that the price will be at least the BoP at the close.

Filters and alerts on this probability are not yet available. The probability will be included in future Squeeze Play email alerts.

I am working on applying a similar methodology to CwH stocks.

Conclusion

The probability metric will be of most interest to options traders. It means that if you place an 'in the money" put order at the breakout price on receiving a Squeeze Play alert, you will be "in the money" at the end of the day 70% of the time.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 16412.7 0.55% -0.99% Down
NASDAQ 4127.73 -0.67% -1.17% Down
S&P 500 1865.09 0.4% 0.91% Down
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
Dow Jones
0.55 %		 S&P 500
1.84 %		 S&P 500
10.33 %		 S&P 500
0.91 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Medical Practitioners Manufactured Housing Manufactured Housing Publishing - Newspapers
 Most Improved Industry (by change in technical rank2)
Air Services - Other
+ 91		 Electric Utilities
+ 114		 Synthetics
+ 196		 Aluminum
+ 205
Charts of each industry rank and performance over 12 months are available on the site

1The Market Signal is derived from our proprietary market model. The market model is described on the site.
2The site also shows industry rankings based on fundamentals, combined technical and fundamentals, and on price alone. The site also shows daily industry movements.
 Top Breakout Choices Stocks on our Cup-and-Handle list with best expected gain if they breakout
Category
Symbol
Company Name
Expected Gain1
Best Overall ALIM Alimera Sciences, Inc. 103
Top Technical ALIM Alimera Sciences, Inc. 103
Top Fundamental NGVC Natural Grocers by Vitamin Cottage, Inc. 31
Top Tech. & Fund. NGVC Natural Grocers by Vitamin Cottage, Inc. 31
1This is the gain predicted by our Expected Gain model if the stock breaks out. Expected Gains for all cup-and-handle stocks are published on our site.
 Top Second Chances Stocks that broke out this week and are still in buyable range
Category
Symbol
Company Name
Expected Gain1
Best Overall FSS Federal Signal Corporation 56
Top Technical MYGN Myriad Genetics, Inc. 50
Top Fundamental MYGN Myriad Genetics, Inc. 50
Top Tech. & Fund. MYGN Myriad Genetics, Inc. 50
1This is the gain predicted by our Expected Gain model after the stock has broken out which uses the volume on breakout as a predictive term. Because the model variance is +/- 38% the expectation can be negative.
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