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Week 36 Breakout Forecast: Short-Term Picks To Give You An Edge

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Includes: BA, CARA, CDLX, CPRX, FORM, INSP, INTC, LCI, NG, NSSC, OPRA, PG, PVG, QD, SBLK, SONO, SSRM, SVXY, TNAV, TTGT, TVIX, TWTR, UVXY, VIXY, VXX, VXXB, ZUO, ZYME
by: JD Henning
Summary

Two sample Breakout Stocks for Week 36 with better than 10% short-term upside potential and one sample Dow 30 stock pick.

The streak continues with 99 out of 120 trading weeks (82.5%), with at least one stock move 10% or greater within 4 or 5 trading days.

The Fed continued QT again this week of -$4.8 billion despite the reported halt and the Momentum Gauges remain at Negative 51 and Positive 26.

This week CDLX gained 11.98% and carries strong momentum into next week.

The Best of the Dow 30 for mega-cap selection next week is Intel Corp. Both BA and PG gained over 2% last week.

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 119 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 99 out of 120 weeks (82.50%). 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 +81.33% without application of the Momentum Gauge signals to avoid market downturns. This equates to an average gain of 2.62% per month since 2017 compared to +0.90% for the S&P per month over the same time period. These returns continue to outpace the S&P by over 2.9x after nearly three years. Avoiding trades during the months when the Momentum Gauge signals are negative as shown by the three areas outlined in the chart below has resulted in 110.41% total gains (3.56% per month and 3.96x the S&P 500 from inception).

The Breakout Returns by month above shows the 3 major events since 2018 where the Momentum Gauge signal has turned negative. The recent relatively high frequency of negative momentum alerts may be contributing to a larger market signal of decline. 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

Prior negative momentum signals have lasted beyond 1 month and as long as 3 months since the measurement began. The July 31/August 1st signal marks a 3rd period of negative momentum in 2 years according to the signals.

Examining The Average Weekly Returns

The cumulative total of top weekly breakout gains YTD 2019 is now up +277.94% 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 gained 2.79% for the week. The volatility of the returns of the 4 breakout picks last week ranged 5.47% with one stocks exceeding 10% gains in a trading week. Conditions are best when the Momentum Gauge is positive.

Volatility is continuing to increase for the 2nd half of 2019 as forecasted in my July article:

S&P 500 On Pace For Highest Returns In 60 Years With Rising Fears

S&P 500 volatility continues to rise and the signals in each of these prior weekly articles have pointed to greater market declines. We have now had three of the largest daily declines this year in August while the prior four largest moves were over 7 months. Market volatility is still trending below the ten-year average in +/- 2% S&P 500 daily moves so continue to be cautious as the momentum gauges remain highly negative.

As I always tell traders, while these weekly measurements are only over fixed 5-day periods 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 remain negative going into the short Labor Day trading of Week 36. Picks from prior weekly selections that may have some continued positive momentum are: Star Bulk Carriers (SBLK), TechTarget (TTGT) +68.13%, FormFactor (FORM) +17.54%, Cara Therapeutics (NASDAQ:CARA) +38.86%, Qudian Inc. (QD) +37.76%, Pretium Resources (PVG) +51.15%, SSR Mining Inc. (SSRM) +14.83%, Inspire Medical Systems (INSP) +21.52%, Lannett Company (LCI) +23.65%, Opera LTD (OPRA) +37.47%, NovaGold Resources (NG) +84.62%, Twitter (TWTR) +12.18%, Catalyst Pharmaceuticals (CPRX) 56.74%, Zymeworks (ZYME) +21.98%, Napco Security Technologies (NSSC) +27.04%, Telenav (TNAV) +17.18% and Cardlytics (CDLX) +11.98% from last week.

Market Conditions into Week 36

For the second week in a row, the Fed continued quantitative tightening (QT) despite the reported halt on July 31. Last week the Fed rolled off -$4.86 billion, but appears to be signaling another 25 bps rate cut at the next FOMC meeting in September. System Open Market Account Holdings - Federal Reserve Bank of New York

The Weekly Momentum Gauge chart shows actual QT applied again last week compared to scheduled QT (light blue). The red and green horizontal bars represent control levels of a pattern when average weekly negative momentum drops below 60 it has always led to a positive market reversal. Also when avg. weekly positive momentum has moved above 30 it has led to a positive market breakout.

As I have repeated now weekly, on Aug 1st the Momentum Gauge gave us only our 4th Negative Momentum breakdown signal in three years. We are still in negative conditions from the August breakdown signal. See the Aug 9th chart below:

Subscribers saw these movements and warnings in more detail through the Daily Update articles this past week. As well as updates on changes to the V&M Dashboard and a new Market Neutral trading signal using the Momentum Gauges that delivered excellent results since last year and will continue to be tested:

The positive Friday anomaly is continuing to fade and give way to more positive movements on Tuesdays and Thursdays. Historically, Tuesdays have been the best day of the week for decades reacting to the Pre-FOMC announcements by the Fed as documented in financial literature.

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.

TVIX gained 23% on Friday, 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 36 - 2019 Breakout Stocks for next week are:

The Week 36 stocks consist of one Technology, one Healthcare, one Consumer Goods, and one Industrial Goods stock. Members received these selections on Friday during the trading day with SONO delivering the best gains so far. The sample for next week are:

  1. Sonos, Inc. (SONO) - Consumer Goods/Electronic Equipment
  2. Zuora, Inc. (ZUO) - Technology/Application Software

Sonos, Inc. - Consumer Goods/Electronic Equipment Price Target: 18.00

Aug-26-19 12:09PM Investors Who Bought Sonos (Nasdaq: SONO) Shares A Year Ago Are Now Down 29% Simply Wall St.
Aug-20-19 08:00AM WeWork Analyst Warns IPO Filing a Masterpiece of Obfuscation Bloomberg
Aug-19-19 02:54PM 4 Cheap Stocks Ready to Rise InvestorPlace
Aug-19-19 01:48PM Sonos Rumors 2019: What We Know About the Upcoming Sonos Bluetooth Portable Speaker InvestorPlace
Aug-19-19 01:24PM Sonos Resonates With Investors on Raymond James Upgrade to Strong BuyTheStreet.com

(Source: FinViz)

Sonos, Inc., together with its subsidiaries, designs, develops, manufactures, and sells multi-room audio products in the United States and internationally. It provides wireless speakers, home theater speakers, and components. The company offers its products through third-party retail stores, including custom installers of home audio systems; and e-commerce retailers, as well as through its sonos.com Website.

Zuora, Inc. - Technology / Application Software Price Target: 18.00

Aug-29-19 10:39PM Edited Transcript of ZUO.N earnings conference call or presentation 28-Aug-19 9:00pm GMT Thomson Reuters StreetEvents
Aug-29-19 12:28PM Zuora Gains After Earnings Beat - CEO Highlights Progress in Addressing Issues TheStreet.com
Aug-29-19 11:46AM Why Shares of Zuora Are Surging Today Motley Fool
Aug-29-19 07:54AM Dow Jones Futures Signal Strong Stock Market Rally On 'Calm' China Trade War Comments Investor's Business Daily
Aug-29-19 07:11AM 3 Top Stocks Under $20 Motley Fool
Aug-28-19 10:23PM Zuora Inc. (ZUO) Q2 2020 Earnings Call Transcript Motley Fool
Aug-28-19 05:45PM Zuora (ZUO) Reports Q2 Loss, Tops Revenue Estimates Zacks

(Source: FinViz)

Zuora, Inc. provides cloud-based software on a subscription basis that enables companies in various industries to launch, manage, and transform into a subscription business. The company offers Zuora Central platform that acts as an intelligent subscription management hub that allows customers to orient order-to-revenue operations. Its products include Zuora Billing for subscription billing; Zuora RevPro, a revenue recognition automation solution; Zuora CPQ for configuring deals, pricing, and quoting in a subscription business; and Zuora Collect designed to handle the complicated function of collections associated with subscription-based businesses.

Top Dow 30 Stock To Watch For Week 36

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 The Boeing Company (BA) gained 2.27% and The Procter & Gamble Company (PG) gained 2.48%. Both companies continue with strong positive momentum.

This week two new Dow 30 stocks are showing strong potential:

Intel Corporation (INTC)

Intel technical chart performance is recovering from a head/shoulders bearish topping pattern for August as shown below. The key technical indicators of investor sentiment and net inflows are showing a strong early positive reversal for potential breakout next week with a target around 51/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.

These momentum picks are different from the Weekly Bounce/Lag momentum picks with a 2% trailing stop loss methodology 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.

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.