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 108 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 93 out of 112 weeks (83.04%). More than 150 stocks have gained over 10% in a 5-day trading week since this MDA testing began in 2017.
Momentum Breakout Stock Portfolio 2019 results YTD
The all-time total return is now +80.03% without application of the Momentum Gauge signals to avoid market downturns.
Avoiding trades during the months when the Momentum Gauge signal turned negative as shown by the two areas outlined on the chart would have resulted in 101.87% total gains. (See the Weekly Momentum Gauge chart below)
Examining the Average Weekly Returns
The cumulative total of top weekly breakout gains YTD is now up +216.71% and these breakouts in less than 5 days skew highly positive compared the cumulative S&P 500 returns of +19.29%. However, in order to show the breakout frequency more clearly, the YTD Average Weekly Returns graph will now replace the Risk Range Graph available in prior breakout articles.
The graph above compares the +19.29% S&P 500 gains YTD using weekly averages against the best case and worst case average returns of the top weekly breakout gains YTD. The average return of the 4 breakout picks last week was +5.02% with two stocks moving higher than 10% in less than 4 trading days. This remains a statistically significant result now spanning more than 100 weeks of testing.
As I always tell traders, don't fixate on firm 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 preserve gains for as long as these buy conditions remain intact.
Momentum conditions are still positive heading into Week 28. A sample of five prior breakout picks that are showing some positive momentum conditions are: TechTarget (TTGT) +48.80%, Cara Therapeutics (CARA) +29.21%, Veritone (VERI) +27.63%, YETI Holdings (YETI) +27.02%, eHealth Inc. (EHTH) +45.29%, Rigel (NASDAQ:RIGL).
Market Conditions into Week 28
Currently, momentum gauge sentiment and money flow indicators have turned positive once again.
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 Stock Market Friday anomaly YTD 2019
The unusual strength of Friday gains is now at 53% of all S&P 500 gains through the first half of the year. It may start to give way to the more "normal" anomaly of the pre-FOMC announcement drift. As late as the early part of June, Fridays accounted for nearly 70% of all the gains in the S&P 500.
The pre-FOMC announcement drift is well documented and defined in financial studies in the following terms:
"We document large average excess returns on U.S. equities in anticipation of monetary policy decisions made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. These pre-FOMC returns have increased over time and account for sizable fractions of total annual realized stock returns." - NY Federal Reserve Bank, 2013
There are two conditions that increasingly reflect today's market with the condition of a low yield curve and high implied market volatility. According to studies, these conditions contribute to a higher pre-FOMC drift (Tuesday gains). So our unusually high Friday anomaly may move back toward the more expected Tuesday gains. It also may just be a matter of the law of averages, that given enough time each day of the week will see similar S&P 500 gains.
"Pre-FOMC returns are higher in periods when the slope of the Treasury yield curve is low, implied equity market volatility is high, and when past pre-FOMC returns have been high. We discuss challenges explaining these returns with standard asset pricing theory." (Lucca, D. O. & Moench, E. The Pre-FOMC Announcement Drift. September 2011 Number 512 Revised August 2013. JEL classification: G10, G12, G15)
The Week 28 - 2019 Breakout Stocks for next week are:
The Week 28 stocks consist of one healthcare stock and one financial stock:
- Cellectis S.A. (CLLS) - Healthcare / Biotechnology
- Triple-S Management (GTS) - Financial / Accident & Health Insurance
Cellectis S.A. - Healthcare / Biotechnology
Price Target: $20.00
|Jun-26-19 04:30 PM||Cellectis S.A. Reports Results from Combined Shareholders Meeting Held on June 25, 2019 Business Wire|
|May-07-19 04:32 PM||Cellectis Reports Financial Results for First Quarter 2019 Business Wire|
|Apr-17-19 04:30 PM||Cellectis Announces Oral and Poster Presentations of Allogeneic CAR T-Cell Programs at the 2019 ASGCT Annual Meeting Business Wire|
Cellectis S.A., a clinical stage biotechnological company, develops immuno-oncology products based on gene-edited T-cells that express chimeric antigen receptors to target and eradicate cancer cells. It operates through two segments, Therapeutics and Plants.
Triple-S Management - Financial / Accident & Health Insurance
Price Target: $27.00
|Jun-26-19 02:08 PM||Here is What Hedge Funds Think About Triple-S Management Corp. Insider Monkey|
|Jun-20-19 02:05 PM||How Much Of Triple-S Management Corporation Do Institutions Own? Simply Wall St.|
Triple-S Management Corporation, through its subsidiaries, provides a portfolio of managed care and related products in the commercial, Medicare Advantage, and Medicaid markets. It operates through three segments: Managed Care, Life Insurance, and Property and Casualty Insurance.
Top 2 Dow 30 Stocks to Watch for Week 28
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 JPMorgan Chase & Co. (JPM) gained +1.51% and The Goldman Sachs Group (GS) gained +1.61% as the financial sector was the best performing sector for the week.
One of the two stocks for next week based on the same published breakout parameters is also a previous selection:
NIKE, Inc. (NKE)
NIKE is in a strong positive breakout mode with high net inflows and a price move above the negative trendline from April. Under the current strong momentum conditions and high net inflows, the price is likely to beat $90/share in the short term.
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.
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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.