Friday's market action met William O'Neil's definition of a "Follow Through Day (FTD)". That is, the market closed higher on the fourth day after a mid-day reversal. Under this definition, the first day of the rally came on Tuesday when a mid-day reversal saw the NASDAQ close above its intra-day low. For CANSLIM adherents, this is a signal that the downward trend has reversed and it is safe to re-enter the markets. Our trend signal remains negative, however, although I would expect it to turn up shortly, if the rally continues in the early part of next week.

In 2011 I did an analysis of FTDs and found that of 18 clearly defined bottoms an FTD occurred for only 10 of them. Consequently, I prefer to wait for my own trend signal, which is more conservative, to turn up .

New Strategies in the Cup and Handle Backtest Tool

The Cup and Handle Backtest tool (from the Evaluate > Analytical Tools Menu) now has two options to choose from:

1. Cup and Handle Minimum Drawdown

• This backtest is based on the cup and handle stock characteristics that were determined to give the best return for the least drawdown during 2015. In other words, this is a low risk strategy

2. Cup and Handle Maximum Return

• This backtest is based on the cup and handle stock characteristics that were determined to give the maximum return regardless of drawdown during 2015. In other words, this is a higher risk strategy that offers the best possible return.

These two strategies are further explained below.

The backtest tool allows you to develop your own strategies and/or see how the two basic strategies need to be adjusted for changing market conditions.

Suggested Strategy for Optimum and Maximum Breakout Returns

1. For the optimal return (best profit at least risk) I now suggest the following trading strategy for cup with handle stocks:

• Each day, create a personal watchlist of stocks that satisfy
• RS Rank must be at least 90
• Industry Rank must be in the top 20 percentile (i.e. have a rank less than 43 in our industry ranking scheme
• Average daily volume >= 100,000.
• If market trend is positive, buy on alert
• Sell at next open if volume at end of breakout day is less than 2 times average 50 day volume
• Sell if stock drops 6% or more from the breakout price.
• If stock  rises above breakout price after purchase, set a 3% trailing stop by monitoring daily high's and setting a stop loss at 3% of the maximum high after breakout. Adjust daily if necessary.
• Sell if trailing stop met intraday.

        This strategy would have returned 127% year-to-date.

2. For the greatest return (best profit regardless of risk) I now suggest the following trading strategy for cup with handle stocks:

• Each day, create a personal watchlist of stocks that satisfy
• RS Rank must be at least 80 (all stocks on the watchlist have an RS of at least 80)
• Industry Rank must be in the top 70 percentile (i.e. have a rank less than 150 in our industry ranking scheme
• Average daily volume >= 100,000.
• Regardless of market trend, buy on alert
• Sell at next open if volume at end of breakout day is less than 1.5 times average 50 day volume
• Sell if stock drops 6% or more from the breakout price.
• If stock rises above breakout price after purchase, set a 3% trailing stop by monitoring daily high's and setting a stop loss at 3% of the maximum high after breakout. Adjust daily if necessary.
• Sell if trailing stop met intraday.

        This strategy would have returned176% year-to-date.