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 114 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 95 out of 116 weeks (81.90%). 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 +78.44% without application of the Momentum Gauge signals to avoid market downturns. Total returns through July were up +10.77%, then the negative momentum reversal signal returned in the first week of August.
The Breakout Returns by month above shows the 3 major events where the Momentum Gauge signal has turned negative. As members of my service know well and I have detailed in many Quantitative Tightening (QT) articles, each of these prior downturn periods has corresponded with the largest Fed asset rolloff amounts. Prior negative momentum signals have lasted beyond 1 month and as long as 3 months since the measurement began. We are now entering a 3rd period of negative momentum according to the signals.
Avoiding trades during the months when the Momentum Gauge signal turned negative as shown by the two areas outlined on the chart has resulted in 107.62% 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 +244.75% and these breakouts in less than 5 days skew highly positive compared to the cumulative S&P 500 returns of +16.96%. However in order to show the breakout frequency more clearly the YTD Average Weekly Returns graph below will now replace the Risk Range Graph available in prior breakout articles.
The graph above compares the average weekly S&P 500 gains YTD against the best case and worst case average returns of the top weekly breakout gains YTD. The S&P 500 lost -3.10% for the week. The volatility of the returns of the 4 breakout picks last week ranged 17.73% with two stocks exceeding 10% gains in less than 4 trading days. The tariff announcement and the GLUU earnings announcement crushed record gains by Thursday sending momentum crashing for the worst week in 2019.
We still have not seen any 2% S&P 500 daily declines in the market this week and 2019 is trending more than 50% below the ten year average in +/- 2% S&P 500 daily moves. Watch for volatility to increase in the second half of the year: S&P 500 On Pace For Highest Returns In 60 Years With Rising Fears
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 have moved into strong negative momentum conditions for Week 32. Picks from prior weekly selections that may have some continued positive momentum are: Qudian Inc. (QD) +52.41%, Veritone, Inc. (VERI) +7.02%, Pretium Resources (PVG) +33.76%, Energy Recovery (ERII) +21.07%, Pixelworks (PXLW) +5.52%, Take-Two Interactive Software (TTWO) +25.84%, Cryoport (CYRX) +48.68%, KEMET Corp. (KEM) +15.92%, Twitter Inc. (TWTR) +12.70%, and Catalyst Pharmaceuticals (CPRX) +28.75%
Market Conditions into Week 32
This past week the Momentum Gauge was continuing more positive until Thursday afternoon when President Trump announced further tariffs against China. That event spiked the daily momentum gauge to the highest negative crossover signal corresponding to prior major market downturn events shown on the charts below.
Members of my service saw the Daily Momentum Gauge signal turn negative the afternoon on Thursday for the first time since the May 1st market downturn event. The gauges closed negative for 2 days confirming a momentum reversal event that is likely to continue negatively until some major positive news/catalyst intervenes. The Weekly Momentum Gauge shows the start of a major trend change for August. (Source: Value & Momentum Breakouts)
Currently momentum gauge sentiment and money flow indicators are negative with declining conditions and increasing negative momentum through last week.
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 Worst Week of 2019 delivered -3.10% on S&P 500
Last week I highlighted some additional capital flows that are very important to the selection of momentum stocks, especially these very short term breakout selections. (See article of Cracking the Hedge Fund Code)
This week I'm highlighting again the strong correlation between the Fed's Quantitative Tightening program and the market effects as shown on the S&P 500, the CBOE VIX volatility index and the Momentum Gauge signals. The pattern is extremely strong and in my opinion linked closely to liquidity shortages caused by major QT scheduled events. This is especially the case when lower liquidity is tied to strong macro-economic events like increased tariff announcements.
Be sure to read this article:
Profiting With Volatility Gains As The Fed Drains for additional details, signals and profitable trades in VelocityShares Daily 2x VIX Short-Term ETN (TVIX) to trade the signals for maximum profitability. Additional volatility instruments include the iPath S&P 500 VIX Short-Term Futures ETN (VXX), the ProShares Short VIX Short-Term Futures ETF (SVXY), the ProShares Ultra VIX Short-Term Futures ETF (UVXY), the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXXB), the ProShares VIX Short-Term Futures ETF (VIXY), among others.
The Week 32 - 2019 Breakout Stocks for next week are:
The Week 32 stocks consist of one services, one healthcare stock, and two technology stocks. Members receive these selections on Friday ahead of the trading week, the sample for next week are:
- Foamix Pharmaceuticals (FOMX) - Healthcare / Biotechnology
- Pixelworks (PXLW) - Technology / Semiconductor - Integrated Circuits
Foamix Pharmaceuticals (FOMX) - Healthcare / Biotechnology Price Target: 3.20 (Source: FinViz)
|Jul-31-19 10:36AM||Will Foamix (FOMX) Report Negative Earnings Next Week? What You Should Know Zacks|
|Jul-30-19 08:00AM||Foamix Announces $64 Million Capital Financing Investment by Perceptive Advisors and OrbiMed GlobeNewswire|
|Jul-24-19 08:00AM||Foamix Pharmaceuticals to Report Second Quarter 2019 Financial Results on August 8 GlobeNewswire|
Foamix Pharmaceuticals Ltd., a late clinical-stage specialty pharmaceutical company, develops and commercializes foam-based formulations for dermatological therapy in the United States, France, Denmark, and Germany. Its lead product candidates include FMX101, a novel topical foam formulation of the antibiotic minocycline that has completed third pivotal Phase III clinical trial for the treatment of moderate-to-severe acne; and FMX103, which is in Phase III clinical trial for the treatment of moderate-to-severe papulopustular rosacea.
Pixelworks (PXLW) - Technology / Semiconductor - Integrated Circuits Price Target: 4.00 (Source: FinViz)
|Aug-02-19 03:38AM||Edited Transcript of PXLW earnings conference call or presentation 1-Aug-19 9:00pm GMT Thomson Reuters StreetEvents|
|Aug-01-19 08:45PM||Pixelworks (PXLW) Reports Break-Even Earnings for Q2 Zacks|
|Aug-01-19 04:05PM||Pixelworks Reports Second Quarter 2019 Financial Results GlobeNewswire|
Pixelworks, Inc. designs, develops, and markets video processing semiconductors, intellectual property cores, software, and custom application specific integrated circuits (ICS) solutions for high-quality energy efficient video applications. The company provides video display processor products, including image processor ICs, such as embedded microprocessors, digital signal processing technology, and software that control the operations and signal processing within high-end display systems.
Top 2 Dow 30 Stocks to Watch for Week 32
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.
One of the top two stocks for next week based on the same published breakout parameters are also previous selections:
Merck & Co. (MRK)
Merck continues in strong positive breakout conditions in an ascending wedge breakout pattern with high positive net inflows and strong technical indicators. Price is likely to retest the top of the channel around 87/share and potentially breakout above on strong earnings results.
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. These momentum picks are different from the Weekly Bounce / Lag momentum picks provided by Prof. Grant in his weekly selections.
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.