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 121 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 121 weeks (81.80%). 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 +80.56% without application of the Momentum Gauge signals to avoid market downturns. This equates to an average gain of 2.52% per month since 2017 compared to +0.92% for the S&P per month over the same time period. These returns continue to outpace the S&P by over 3.2x after nearly three years. Avoiding trades during the months when the Momentum Gauge signals are negative as shown by the three areas outlined on the chart below has resulted in 110.93% total gains (3.47% per month and 3.8x 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. As the Momentum Gauges show below, we are two days into the first positive reversal since June.
These measures have forecasted every major downturn since the research began in 2017 and can be applied on positive upturns as well:
Examining the Average Weekly Returns
The cumulative total of top weekly breakout gains YTD 2019 is now up +276.43% and these breakouts skew highly positive in less than 5 days. The 2019 YTD Average Weekly Return chart below gives you an excellent perspective on 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 1.75% for the week. Sonos (NASDAQ:SONO) reached a high of 9.27% gain in a short trading week but missed the 10% target. The Momentum Gauge turned positive on Thursday and continued positive to the close which could be a strong sign for the Week 37 picks.
Volatility is continuing to increase for the 2nd half of 2019 as forecasted in my July article:
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 turned positive this week. Picks from prior weekly selections that may have some continued positive momentum are: Galectin Therapeutics (GALT) +10.88%, Vail Resorts (MTN) +11.84%, YETI Holdings (YETI) +27.15%, BEST Inc. (BEST) +11.59%, Lannett Company (LCI) +57.98%, Twitter (TWTR) +19.46%, Catalyst Pharmaceuticals (CPRX) 67.94%, Harrow Health (HROW) +3.66%, Zymeworks (ZYME) +33.15%, Shoe Carnival (SCVL) +4.66%, Pixelworks (PXLW) +4.27%, Foamix Pharmaceuticals (FOMX) +34.84%, Vipshop Holdings (VIPS) +11.85%, Cardlytics (CDLX) +14.19%, and Zuora (ZUO) from last week +2.55%
Market Conditions into Week 37
The Fed had no quantitative tightening (QT) this past week and the outdated schedule had called for -$6.3 billion in tightening this week. This is a positive sign after a couple weeks of continued QT that shows liquidity was not affected. System Open Market Account Holdings - FEDERAL RESERVE BANK of NEW YORK
The Weekly Momentum Gauge chart below 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. We are seeing more confirmation of positive momentum reversal in the markets last seen since Week 24 back at the end of June.
(Source: Value & Momentum Breakouts)
The more detailed Daily Momentum Gauge chart updated daily for members improved through the week crossing positively on Thursday and closed positively on Friday. This could be the start of another positive run in the markets ahead of the Fed FOMC meeting September 17-18 and renewed trade talks with China for October.
These positive signals were updated for members through the Daily Update articles this past week. As well as updates on changes to the V&M Dashboard and the new Market Neutral trading signal using the Momentum Gauges that delivered excellent results since last year and will continue to be tested:
- V&M Breakout Morning Update - Sept. 6: Momentum Gauges Turn Positive First Time Since June 25th
- V&M Breakout Morning Update - Sept. 5: S&P 500 Breaks Out On Trade Talks Scheduled For October
- V&M Breakout Morning Update - Sept. 4: Volatility Continues With S&P 500 Bounce To 2935 Resistance
- V&M Breakout Morning Update - Sept. 3: Tariff Hikes Start And Trade Talks Breakdown
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 37 - 2019 Breakout Stocks for next week are:
The Week 37 stocks consist of two Technology, one Consumer Goods, and one Services stock. Members received these selections on Friday morning ahead of the trading week with BEST and another stock delivering the best results so far. The samples for next week are:
- BEST Inc. (BEST) - Services / Trucking
- Skechers USA (SKX) - Consumer Goods / Textile - Apparel Footwear
BEST Inc. - Services / Trucking
Price Target: $7.00
|Sep-06-19 03:00 AM||BEST Inc. to Hold 2019 Annual General Meeting on October 21, 2019 PR Newswire|
|Aug-21-19 08:12 AM||Did Changing Sentiment Drive BEST's Share Price Down By 40%? Simply Wall St.|
|Aug-20-19 12:54 AM||Edited Transcript of BEST.N earnings conference call or presentation 13-Aug-19 11:30 am GMT Thomson Reuters StreetEvents|
|Aug-16-19 11:37 AM||BEST Faces Challenges Against Increasingly Competitive Landscape, KeyBanc Says Benzinga|
|Aug-14-19 12:23 AM||SHINER INTERNATIONAL, INC. Q2 2019 Earnings Call Transcript Motley Fool|
BEST Inc. operates as a smart supply chain service provider in the People's Republic of China. Its proprietary technology platform enables its ecosystem participants to operate their businesses through various SaaS-based applications. The company applies its technologies to a range of applications, such as network and route optimization, swap bodies, sorting line automation, smart warehouses, and store management.
Skechers USA - Technology / Application Software
Price Target: $42.00
|Sep-05-19 10:49 AM||Top Ranked Growth Stocks to Buy for September 5th Zacks|
|Sep-04-19 09:59 AM||Can Carter's Efforts Boost Stock Amid Margin Woes? Zacks|
|Sep-04-19 09:31 AM||The Zacks Analyst Blog Highlights: Skechers, Rent-A-Center, Crocs, Lincoln Educational and Funko Zacks|
|Sep-04-19 09:15 AM||Stocks Slide to Start September Zacks|
|Sep-03-19 07:52 AM||Skechers Up More Than 38% YTD: Growth Plans on Track Zacks|
Skechers USA, Inc. designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers GO brand worldwide. It operates through three segments: Domestic Wholesale Sales, International Wholesale Sales, and Retail Sales.
Top Dow 30 Stock to Watch for Week 37
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.
This week the Dow 30 stock sample from the two weekly picks:
The Travelers Companies (TRV)
Travelers has a beautiful technical breakout setup at $152/share. Indicators are all positive with strongly positive investor sentiment as price clears the resistance here. Next target is at the upper bound of the positive price channel around $165/share.
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.
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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.