Week 23 Breakout Forecast: Gold Stocks, Market Hedges, And High Negative Momentum

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Includes: CFMS, CRAY, EHTH, INSP, LIQT, MCD, MRNS, NG, PVG, QD, QURE, SBLK, TRV, TTWO
by: JD Henning
Summary

Two sample Breakout Stocks for Week 23 with better than 10% short-term upside potential.

6 of 12 picks since Week 20 gained more than 10% in less than 5 days. Last week, OPRA gained 25.66% and SNDX gained 10.08% in 3 days.

The streak continues now with 89 out of 107 trading weeks (83.17%), with at least one stock move 10% or greater in 4 or 5 trading days.

The Momentum Gauge indicators continue to decline to Negative 86 and Positive 14 with higher market net outflows and very bearish warnings; please be cautious.

Since the Momentum Gauge first turned negative on May 1st the S&P 500 declined -6.58% and strong defensive positions have helped to preserve and/or increase gains.

Introduction

The Weekly Breakout Forecast continues my doctoral research analysis on MDA breakout selections over more than 5 years. This subset of the different portfolios I regularly analyze has now reached 107 weeks of public selections as part of this ongoing live forward-testing.

In 2017, the sample size began with 12 stocks, then 8 stocks in 2018, and now at members' request for 2019, I generate 4 selections each week. Remarkably, the frequency streak of 10% gainers within a 4 or 5 day trading week remains at highly statistically significant levels of 88 out of 106 weeks (83.17%). More than 150 stocks have gained over 10% in a 5 day trading week since this MDA testing began in 2017. In many of these weeks, including last week, half or more of the stocks selections gained over 10%. In the past 3 weeks there have been 4 stocks that gained more than 22% in less than 5 days and as much as 43%.

Starting at the beginning of May, we have seen the most negative signals on the Momentum Gauge since October 2018. Readers have been alerted since the first signal on May 1st and we continue to have multiple weeks of trading days with negative momentum higher than positive momentum levels. We have now seen the S&P 500 decline -6.58% since May 1st. This continues to be the most negative momentum condition since Week 39 last year, approximately 8 months ago.

Momentum Breakout Stock Portfolio 2019 results YTD

All time total return is now +78.34%

Risk Range Graph Skews Highly Positive

Cumulative Weekly Max Gain YTD: +179.77% (Best case)

Fixed Holding Period With No Reaction to News/Events: -4.39% (Worst case) The evidence is strong that you can outperform the worst-case fixed 1-week, equal weighted minimum return measurement shown above in the 1 Week Close (blue line). The best results are now coming from longer term holding periods beyond one-week. This is a statistically significant result now spanning more than 100 weeks of testing.

As I always tell traders, don't fixate on holding periods or arbitrary price targets offered by analysts with no clear time horizon. The best gains are made by monitoring the conditions of the indicators that signaled a strong buy in the first place and hold as long as these buy conditions remain intact.

Momentum conditions are highly negative again this week and investor risk appetite is very low. Please remain cautious, but among past selections some positive momentum may be found in: Start Bulk Carriers (SBLK), Marinus PHarmaceuticals (MRNS) +23.50%, Qudian (QD) +18.10%, Pretium Resources (PVG), eHealth (EHTH) +17.44%, Take-Two Interactive Software (TTWO) +11.84%, Inspire Medical Systems (INSP), Conformis (CFMS) +34.59%, Cray Inc (CRAY) +16.58%, uniQure (QURE), and more likely among the current set of Week 23 Breakout stocks.

Market Conditions into Week 23

Starting in week 18 the Momentum Gauge chart had the first negative cross in 31 weeks with negative momentum line above the positive momentum line. Since the May 1st negative cross, the S&P 500 has continued to decline -6.58% through the month of May. This first negative cross shown in the Weekly Momentum Gauge chart below was the strongest warning signal since late September/ early Oct last year.

The weekly momentum chart above goes back to November 2018 in order to show how high the negative momentum values reached at the peak of the market decline last year. Looking back, the negative values in October/November were primarily peaking around values in 80's and positive momentum was in the very low double digits as we are seeing today. However, by the record December market declines the negative values had cleared 100 and were reaching 120 and higher on some days while positive momentum was pegged below 10 for several weeks.

The market weakness has continued through May following exactly the projected patterns in the charts below. As the Momentum Gauges have declined a standard bearish head/shoulders topping pattern has formed and now reached confirmation. In addition, the retracement from the highs at the start of May have fallen exactly to the first Fibonacci retracement level at 2800 and are working their way on the path [B] toward 2700. As of May 31st Friday close, we have broken below the 2800 support level and have moved toward [B] with the S&P 500 now at 2752.50 and halfway to the support level shown at 2700.

TVIX (2x VIX volatility bull fund) Breakout Chart

TVIX breakout as discussed almost daily with members throughout May, the last time TVIX broke out from 20 to 30/share in early May is now producing the same conditions on the indicators with a likely retest of 30/share in the coming days.

Lastly, as a longer term signal on the 20 year chart showing the 10 year treasury rate moving below the effective Fed Funds rate and forecasting impending recessions shown in grey. As we have discussed this week in the chat room, I have attached the S&P 500 chart below to show how the signals correspond to the historical tops in prior events.

(Source: Value & Momentum Breakouts)

These conditions may be macro-event driven and could be resolved quickly with sudden trade deals or changes in Fed policy. But it is very clear that we are reentering significantly negative conditions that I last described here in October:

8 Warning Signals Of Deteriorating Market Conditions

Both of the conditional signals have been triggered for the Momentum Gauge. Using the signals of the Momentum Gauge may significantly improve your returns in 2019 and protect your investments. Two conditional signals that are very important to watch:

  • Avoid/Minimize trading when the Negative score is higher than the Positive momentum score.
  • Avoid/Minimize trading when the Negative score is above 70 on the gauge.

The Week 23 - 2019 Breakout Stocks for next week are:

The four Breakout Stocks for Week 23 were again released earlier than usual on Friday for members to take advantage of the increasingly strong Friday market gain anomaly. They range from $8.3B market cap down to $163M market cap with high representation in the Gold sector. These are commodity hedge stocks for bear market conditions and show strong breakout conditions to help weather the markets ongoing negative momentum. These stocks collectively gained 0.77% prior to the close for members. The sample Week 23 stocks are:

  1. LiqTech International (LIQT) - Industrial Goods / Pollution & Treatment Controls
  2. NovaGold Resources (NG) - Basic Materials / Gold

LiqTech International (LIQT) - Industrial Goods / Pollution & Treatment Controls

Price Target: 12.00 (Source: FinViz)

May-22-19 07:00AM LiqTech International, Inc. Announces Pricing Of Its Upsized Public Offering Of Common Stock PR Newswire
May-22-19 02:44AM Why These Stocks Are On The Move Insider Monkey
May-21-19 04:15PM LiqTech International, Inc. Announces Proposed Public Offering Of Common Stock PR Newswire
May-14-19 08:00AM LiqTech International, Inc. Announces First Quarter 2019 Financial ResultsPR Newswire

LiqTech International, Inc., a clean technology company, provides technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters. The company manufactures and sells ceramic silicon carbide membranes and systems for liquid filtration under the LiqTech, Cometas, and Provital brand names, which are used for the filtration of produced water, pre-filtration of reverse osmosis drinking water, industrial applications, producing clean drinking water, and pool and spa water, as well as marine scrubber bleed water.

NovaGold Resources (NG) - Basic Materials / Gold Price Target: 5.50 (Source: FinViz)

May-21-19 05:21PM NOVAGOLD Announces Election of Directors and Voting Results from 2019 Annual Shareholder Meeting GlobeNewswire
May-15-19 09:15AM The Zacks Analyst Blog Highlights: AngloGold, NovaGold, Middlesex Water, ONE and Facebook Zacks
May-14-19 08:40AM 5 Tariff-Proof Stocks to Own as Trade War Deepens Zacks
May-05-19 01:46PM Heres What Hedge Funds Think About NovaGold Resources Inc. (NG) Insider Monkey

NovaGold Resources Inc. primarily explores for and develops gold mineral properties in Canada and the United States. Its principal asset is the Donlin Gold property covering an area of 71,420 acres located in the Kuskokwim region of southwestern Alaska.

Top 2 Dow 30 Stocks to Watch for Week 23

Applying the same breakout model parameters without regard to market cap or the below-average volatility of mega-cap stocks may produce strong breakout results relative to other Dow 30 stocks.

While I don't expect Dow stocks to outperform typical breakout stocks over the measured five-day breakout period, it can provide some strong additional basis for investors to judge future momentum performance for mega-cap stocks in the short- to medium-term.

Last week Dow Picks declined with the market selloff and high net outflows. The top two stocks based on the same published breakout parameters are also previous selections:

McDonald's Corporation (MCD)

McDonald's price is continuing to retest the 200/share resistance level with increasingly positive technical indicators. MFI is near the lows that marked two prior price rallies while all the indicators are in positive territory reflecting positive investor sentiment under current market conditions.

The Travelers Companies, Inc. (TRV)

Travelers continues to show strong positive momentum conditions from previous selection weeks. The recurring bullish stair stepping inside the positive price channel from December is a strong positive condition. Any improvements in market momentum will bring TRV to retest the top of the price channel again around 155/share.

Conclusion

These stocks continue the live forward-testing of the breakout selection algorithms from my doctoral research with continuous enhancements over prior years. These Weekly Breakout picks consist of the shortest duration picks of seven quantitative models I publish from top financial research that include one-year buy/hold value stocks.

All the very best to you and have a great week of trading!

JD Henning, PhD, MBA, CFE, CAMS

Caution: These stocks are not necessarily recommended for long-term buy/hold unless you are comfortable with very large price swings. These are the most volatile selections I offer from among all the different Value & Momentum portfolios. Entry price points are highlighted in yellow as a general point of entry as market conditions allow in the next trading session. Members of my service receive these selections prior to the close every Friday.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.