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 117 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 96 out of 117 weeks (82.05%). 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 +78.72% 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 described in the analysis below.
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 in 2 years 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 107.90% total gains. (See the Weekly Momentum Gauge chart below)
Examining the Average Weekly Returns
The cumulative total of top weekly breakout gains YTD 2019 is now up +256.41% and these breakouts skew highly positive in less than 5 days. The 2019 YTD Average Weekly Return chart below gives you an excellent perspective how the returns perform relative to the S&P 500 each week.
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 -0.46% for the week. The volatility of the returns of the 4 breakout picks last week ranged 11.38% with three stocks exceeding 9.6% gains in a trading week.
Monday delivered only our 5th greater than 2% S&P 500 daily declines in the market for 2019 and we are still 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 33. Picks from prior weekly selections that may have some continued positive momentum are: TechTarget (TTGT) +65.37%, Dynavax Technologies (DVAX), Qudian Inc. (QD) +53.79%, Akebia Therapeutics (AKBA), Pretium Resources (PVG) +48.85%, eHealth (EHTH) +81.94%, Pixelworks (PXLW) +5.52%, Take-Two Interactive Software (TTWO) +33.27%, Baozun (BZUN) +5.60%, Cryoport (CYRX) +70.51%, KEMET Corp. (KEM) +4.96%, Zscaler (ZS) +19.43%, Syndax Pharmaceuticals (SNDX) +31.17%, NovaGold Resources (NG) +72.46%, Twitter Inc. (TWTR) +9.23%, Catalyst Pharmaceuticals (CPRX) +27.99%, Zymeworks (ZYME) +12.50%, StoneCo. LTD (STNE) +20.07%, Napco Security Technologies (NSSC) +14.96%, Carbon Black (CBLK) +12.56% and Foamix Pharmaceuticals (FOMX) +13.93% from last week.
Market Conditions into Week 33
This past week on Aug 1st, the Momentum Gauge gave us only our 4th Negative Momentum breakdown signal in three years:
These measures have forecasted every major downturn since the research began in 2017: These 3 Measures Forecasted Every Major Downturn Since QT Started: What's Next
Daily Momentum Gauge recovered through most of the week with a more negative signal at the close again Friday. This negative market momentum is likely to continue until the gauge crosses positive again spurred by some major positive news/catalyst. (Source: Value & Momentum Breakouts)
Currently momentum gauge sentiment and money flow indicators are negative with declining conditions and increasing negative momentum through last week. A decline to 2745 levels seems likely barring any further changes in macro-economic events.
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.
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 33 - 2019 Breakout Stocks for next week are:
The Week 33 stocks consist of one healthcare stock, and three technology stocks. Members received these selections on Friday ahead of the trading week, the sample for next week are:
- Collegium Pharmaceuticals (COLL) - Healthcare / Drugs - Generic
- Yelp Inc. (YELP) - Technology / Internet Information Providers
Collegium Pharmaceuticals (COLL) - Healthcare / Drugs - Generic Price Target: 13.50 (Source: FinViz)
|Aug-08-19 11:24PM||Assertio Therapeutics, Inc (ASRT) Q2 2019 Earnings Call Transcript Motley Fool|
|Aug-08-19 01:31AM||Edited Transcript of COLL earnings conference call or presentation 7-Aug-19 8:30pm GMT Thomson Reuters StreetEvents|
|Aug-08-19 12:23AM||Collegium Pharmaceutical, Inc. (COLL) Q2 2019 Earnings Call TranscriptMotley Fool|
|Aug-07-19 06:35PM||Collegium Pharmaceutical (COLL) Q2 Earnings Surpass Estimates Zacks|
Collegium Pharmaceutical, Inc., a specialty pharmaceutical company, develops and commercializes various products for patients suffering from pain. It provides DETERx platform technology that is designed to maintain the extended-release and safety profiles of highly abused drugs in the face of various methods of abuse and misuse, including chewing, crushing, heating, and injecting.
Yelp Inc. (YELP) - Technology / Internet Information Providers
|Aug-09-19 03:23PM||5 Top Stock Trades for Monday: JCP, DBX, TTD, YELP InvestorPlace|
|Aug-09-19 01:04PM||Analysts Check In On Yelp's Q2 Benzinga|
|Aug-09-19 09:36AM||Yelp's (YELP) Q2 Earnings Top, Revenues Miss Mark, Rise Y/Y Zacks|
|Aug-09-19 09:00AM||Yelp Delivers as Promised, Reaffirms 2019 Guidance Motley Fool|
Yelp Inc. operates a platform that connects consumers with local businesses in the United States, Canada, and internationally. The company's platform covers various local business categories, including restaurants, shopping, beauty and fitness, arts, entertainment and events, home and local services, health, nightlife, travel and hotel, auto, and others. It provides free and paid advertising products to businesses, as well as enables businesses to deliver targeted search advertising to local audiences through its Website and mobile application; and business listing products.
Top 2 Dow 30 Stocks to Watch for Week 33
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 Merck & Co. gained +1.94% and McDonald's gained 3.47% for the week despite continued S&P 500 and Dow 30 declines.
The top two stocks continue the same as last week based on the same published breakout parameters:
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 still likely to retest the top of the channel around 87/share and potentially breakout above on strong earnings results.
McDonald's Corporation (MCD)
McDonald's is also in strong positive breakout conditions with improving net inflows and strong positive momentum indicators. The dividend provides some safety in a volatile market environment and management continues with record stock repurchases reducing the shares outstanding to 762M and propping up shareholder value. Price retested the top of the channel around 220/share as forecasted last week and will likely continue a strong ascending price pattern higher.
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 contributing author 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 more selections and always 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.