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Week 39 Breakout Forecast: Short-Term Picks To Give You An Edge

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Includes: BEST, CDLX, CPRX, DOW, FNGD, FNGU, FOMX, GSHD, INSP, LCI, MRK, MTEM, NG, NSSC, PVG, SSRM, VIPS, WMT, ZYME
by: JD Henning
Summary

Two sample Breakout Stocks for Week 39 with better than 10% short-term upside potential and one sample Dow 30 stock pick.

The streak continues with 101 out of 123 trading weeks (82.1%), with at least one stock move 10% or greater within 4 or 5 trading days.

Momentum Gauges remain in the positive signal since the reversal on September 5th. Momentum closed on Friday at 67 Positive and 28 Negative.

Two Best of the Dow 30 for mega-cap selections are Merck and Pfizer, Inc. WMT lost -0.38% and DOW gained +0.02% last week.

The Fed cut rates this past week by 25 bps and had very minimal changes to the balance sheet but engaged in some of the largest liquidity moves in the repo markets in over a decade.

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 120 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 101 out of 123 weeks (82.1%). 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 +85.36% without application of the Momentum Gauge signals to avoid market downturns. 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 115.74% total gains since inception.

(Source: V&M Breakouts)

The Breakout Returns by month above shows the 3 major events since 2018 where the Momentum Gauge signals turned negative. The Momentum Gauge signals turned positive September 5th and are contributing to a significant new market neutral trading model released here for subscribers to use with ETF combinations :

Strongest Market Timing Signals To Enhance Bull/Bear ETF Returns

(Source: V&M Breakouts)

Year to date the best returns have been +137.58% using a combination trade buying the MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) bull fund on positive momentum signals and buying the MicroSectors FANG+ Index -3X Inverse Leveraged ETN (FNGD) bear fund on negative momentum signals as illustrated in the chart and linked article above.

Examining The Average Weekly Returns

The cumulative total of top weekly breakout gains YTD 2019 is now up +291.91% 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.

(Source: V&M Breakouts)

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. Last week JYNT reached 8% gains and KIN up to 18% in less than 5 trading days.

Be on the lookout for significant volatility changes for the 2nd half of 2019 as discussed in my July article as we continue well below the ten-year average YTD:

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

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 continue positive but declining this past week. Picks from prior weekly selections that may have some continued positive momentum are:

Pretium Resources (PVG) +37.67%, SSR Mining (SSRM) +27.96%, Inspire Medical Systems (INSP) +16.80%, NovaGold (NG) +58.31%, Lannett Company (LCI) +65.67%, Catalyst Pharmaceuticals (CPRX) +68.45%, Zymeworks (ZYME) +25.64%, Napco Security Technologies (NSSC) +6.12%, Foamix Pharmaceuticals (FOMX) +48.36%, Vipshop Holdings (VIPS) +26.95%, Cardlytics (CDLX) +1.66%, and BEST Inc. (BEST) +11.59%

Market Conditions Into Week 39

The Fed cut rates as expected by 25 bps this past week. The Fed balance sheet was virtually unchanged with a reduction of MBS and an offsetting increase of US treasuries: System Open Market Account Holdings - Federal Reserve Bank of New York

The Weekly Momentum Gauge chart below shows the Fed's actual balance sheet action (dark blue) over the original Fed scheduled QT (light blue). Back in Week 37 shown in dark blue the Fed actually had a net easing event that added $5.6 billion back to the balance sheet and increased market liquidity in that week of 9/11.

The red and green horizontal bars represent control levels of a pattern for an early potential signal. It shows that when average weekly positive momentum (green line) drops below 55, it has always led to a negative market reversal. Also when avg. weekly negative momentum (red line) has moved above 35 it has led to a negative market breakdown as confirmed later in the crossing signal.

(Source: V&M Breakouts)

The more detailed Daily Momentum Gauge reserved for members shows the positive momentum line declining after very strong gains from the Sep 5th signal.

Subscribers saw these movements and signals 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. Reports this week:

  • V&M Breakout Morning Update - Sep 20: Premarket Positive And Ready To Test The Friday Anomaly
  • V&M Breakout Morning Update - Sep 19: S&P Still Holding At 3000 After Fed 25 Bps Rate Cut
  • V&M Breakout Morning Update - Sep 18: S&P Still Holding At 3000 Ahead Of Fed Decision
  • V&M Breakout Morning Update - Sep 17: S&P Settling Around 3000 Awaiting Fed Decision
  • V&M Breakout Morning Update - Sep 16: Record Oil Spike From Saudi Attack Shocks Market

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 39 - 2019 Breakout Stocks For Next Week Are:

The Week 39 stocks consist of one Healthcare, one Consumer Goods, one Services and one Financial stock. Members received these selections on Friday morning ahead of the trading week with +2.04% net gains since release. MTEM gained over 5% since release and shows significant positive upside on strong fundamental and technical variables:

  1. Goosehead Insurance (GSHD) - Financial/Insurance Brokers
  2. Molecular Templates (MTEM) - Healthcare/Biotechnology

Goosehead Insurance - Financial / Insurance Brokers Price Target: 60.00

Aug-20-19 08:17PM Goosehead Insurance Inc. President and COO Michael C. Colby Sold $885,878 of Shares GuruFocus.com
Aug-01-19 09:24PM Goosehead Insurance, Inc. Q2 2019 Earnings Call Transcript Motley Fool
Aug-01-19 04:15PM Goosehead Insurance, Inc. Announces Second Quarter 2019 Results GlobeNewswire

(Source: FinViz)

Goosehead Insurance, Inc. focuses on operating as a holding company for Goosehead Financial, LLC that provides personal lines insurance agency services in the United States. The company operates through two segments, Corporate Channel and Franchise Channel. It offers various insurance products, including homeowner's insurance; auto insurance; other personal lines products, such as flood, wind, and earthquake insurance; excess liability or umbrella insurance; specialty lines insurance comprising motorcycle, recreational vehicle, and other insurance; commercial lines insurance consisting of general liability, property, and auto insurance for small businesses; and life insurance.

Molecular Templates - Healthcare / Biotechnology Price Target: 12.00

Aug-29-19 07:30AM Is Molecular Templates Using Too Much Debt? Simply Wall St.
Aug-12-19 04:30PM Molecular Templates, Inc. Reports Second Quarter 2019 Financial Results GlobeNewswire

(Source: FinViz)

Molecular Templates, Inc., a clinical stage oncology company, focuses on the discovery and development of biologic therapeutics for the treatment of cancer and other diseases. The company primarily develops a pipeline of engineered toxin bodies. Its lead drug candidate is MT-3724 that is in a Phase II clinical trial for the treatment of relapsed/refractory diffuse large B-cell lymphoma, and Phase II clinical trial for treating non-Hodgkin's lymphoma.

Top 2 Dow 30 Stocks To Watch For Week 39

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 Walmart Inc. (WMT) lost -0.38% and Dow Inc. (DOW) gained +0.02%.

This week the Dow 30 stock sample from the two weekly picks:

Merck & Co. (MRK)

Merck has begun a strong positive price reversal from support at $82/share with all the indicators turning positive. Price is likely to retest resistance at $87/share with momentum strong enough to move to the higher price channel level around 92/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

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.

Additional disclosure: 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.