Seeking Alpha

Week 41 Breakout Forecast: Short-Term Picks To Give You An Edge

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Includes: COLL, CRAY, ELF, ENPH, FNGD, FNGU, HEAR, JNJ, JOBS, LCI, LPG, MBUU, MEET, MTEM, MTN, NAT, NG, PAYS, PCTI, PVG, SSRM, STNE, TAL, TTGT, TTWO, VIPS
by: JD Henning
Summary

Two sample Breakout Stocks for Week 41 with better than 10% short-term upside potential and one sample Dow 30 stock pick.

The streak continues with 103 out of 125 trading weeks (82.40%), with at least one stock move 10% or greater within 4 or 5 trading days.

For last week, PCTI gained +13.80% through a difficult week reaching a high of +14.97% midweek.

Momentum Gauges turned Negative on September 24th for the only the third time in 2019, and we are still in the longest bull market expansion of over 11 years with analysts calling an end of cycle.

The Fed increased its balance sheet +$9.4 billion this week in the largest "organic" easing event since 2017 prior to when the quantitative tightening program began.

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 125 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 103 out of 125 weeks (82.40%). 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 +84.44% without application of the Momentum Gauge signals to avoid market downturns. Top gains last week averaged +6.19% during a week of strong market declines.

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 turned negative as shown by the four numbered areas outlined on the chart below has resulted in 118.02% total gains since inception.

(Source: V&M Breakouts)

The signals turned negative September 24th in only the fourth negative momentum gauge top since October 2018. You can see how the returns above and the Momentum Gauge tops shown below relate to the strength of monthly momentum gains. The 4 events numbered in the return chart above correspond directly with the 4 momentum gauge tops below since October 2018. If trading is avoided during the weeks when the momentum gauges turn negative, the total return chart is up 118% with a maximum drawdown of -8.34% over three years.

(Source: V&M Breakouts)

These momentum gauge signals are contributing to a significant new market neutral trading model released here for subscribers to use with bull/bear ETF combinations:

Strongest Market Timing Signals To Enhance Bull/Bear ETF Returns

(Source: V&M Breakouts)

The chart above uses 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 in the article above.

Examining the Average Weekly Returns

The cumulative total of top weekly breakout gains YTD 2019 is now up +303% 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.

(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, PCTI closed +13.80% through a difficult week reaching a high of +14.97% midweek.

Be on the lookout for significant volatility changes for the second 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 have shifted to strong negative and declining this past week. Additional picks from prior weekly selections that may have some continued positive momentum are:

Pretium Resources (PVG) +38.59%, SSR Mining (SSRM) +7.1%, Take-Two Interactive Software (TTWO) +27.54%, Vail Resorts (MTN) +9.35%, The Meet Group (MEET) +7.88%, TAL Education Group (TAL) +3.60%, Lannett Company (LCI) +43.70%, Cray Inc. (CRAY) +16.58%, NovaGold (NG) +61.29%, Turtle Beach Corporation (HEAR) +3.86%, Collegium Pharma (COLL) +5.22%, PaySign (PAYS) +4.81%, StoneCo. (STNE) +13.02%, Enphase Energy (ENPH) +11.11%, TechTarget (TTGT) +5.42%, Vipshop Holdings (VIPS) +19.4%, and Nordic American Tankers LTD (NAT) +37.44%, Molecular Templates (MTEM) +3.88%, e.l.f. Beauty (ELF) 3.14%, 51job (JOBS) +2.28%, and PCTEL Inc. (PCTI) +13.80%.

Market Conditions into Week 41

In the prior Week 39, the Fed rolled off -$15.38 billion from the balance sheet (primarily Mortgage-Backed Securities) in what is considered an "organic" tightening event. This past week 40, the Fed added +$9.4 billion to their balance sheet in the largest "organic" QE event since 2017 and nearly doubled the Week 37 easing event of $5 billion. This event is also shown on the weekly momentum gauge chart below.

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 in dark blue over the original Fed scheduled QT (light blue). The most recent activity was the largest "organic" QE event in several years of +$9.4 billion. This shows every indication that not only has QT been halted but the Fed is also actively trying to prevent another fourth quarter meltdown as we experienced in 2018.

The Weekly Momentum gauge chart below shows confirmation of a negative momentum signal from earlier this week on the daily momentum chart. Every time in the past year when the avg. weekly negative momentum (red line) has moved above the positive momentum (green line), it has led to a negative market breakdown signal.

(Source: V&M Breakouts)

The more detailed Daily Momentum Gauge reserved for members shows the negative crossing signal from earlier this past week. These movements and signals were updated in more detail through the Daily Update articles this past week:

  • V&M Breakout Morning Update - Oct 4: Fed Eased $9.4B And S&P 500 Back Down To 2900 Ahead Of Jobs Report
  • V&M Breakout Morning Update - Oct 3: S&P 500 Testing 2880 Support Today With Strong Negative Momentum
  • V&M Breakout Morning Update - Oct 2: Dow Down -128 Premarket With Gauges Still Negative From Last Week
  • V&M Breakout Morning Update - Oct 1: Futures Positive To Start Q4 With S&P 500 Down From 2994 After Hours
  • V&M Breakout Morning Update - Sep 30: S&P 500 Testing 2970 Resistance With China Trade Talks Scheduled For Oct 10.

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 41 - 2019 Breakout Stocks for next week are:

The Week 41 stocks consist of one Technology, one Consumer Goods, one Services, and one Industrial Goods stock. Members received these selections on Friday morning ahead of the trading week:

  1. Dorian LPG (LPG) - Services/Shipping
  2. Malibu Boats (MBUU) - Consumer Goods/Recreational Goods

Dorian LPG - Services/Shipping

Price Target: 14.00

Sep-12-19 12:26PM Edited Transcript of LPG earnings conference call or presentation 7-Aug-19 2:00pm GMT Thomson Reuters Street Events
Sep-06-19 06:13PM Chuck Royce's Firm Leaves FreightCar America at the Station GuruFocus.com
Aug-23-19 03:18PM Insiders Roundup: Facebook, Avalara GuruFocus.com
Aug-19-19 07:00AM Leading Shipping Companies to Present at Capital Links 12th Annual Shipping & Marine Services Forum Tuesday, September 10, 2019, in London, UK GlobeNewswire

(Source: FinViz)

Dorian LPG Ltd., together with its subsidiaries, engages in the transportation of liquefied petroleum gas through its LPG tankers worldwide. It owns and operates very large gas carriers (VLGCs). As of March 31, 2019, its fleet consisted of 22 VLGCs with carrying capacity of approximately 1.8 million cubic meters and a time chartered-in VLGC.

Malibu Boats Consumer Goods/Recreational Goods

Price Target: 45.00

Oct-01-19 05:50PM Malibu Boats (MBUU) Gains As Market Dips: What You Should Know Zacks
Oct-01-19 02:24PM Introducing the All-New Malibu M240 GlobeNewswire
Sep-11-19 12:37AM Edited Transcript of MBUU earnings conference call or presentation 29-Aug-19 12:30pm GMT Thomson Reuters Street Events
Sep-09-19 07:50AM Should You Be Impressed By Malibu Boats, Inc.'s (MBUU) ROE? Simply Wall St.

(Source: FinViz)

Malibu Boats, Inc. designs, manufactures, distributes, markets, and sells recreational powerboats. The company offers performance sport boats and sterndrive and outboard boats under the Malibu, Axis, Cobalt, and Pursuit brands. Its products are used for a range of recreational boating activities, including water sports, such as water skiing, wakeboarding, and wake surfing, as well as general recreational boating and fishing.

Top Dow 30 Stocks to Watch for Week 41

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:

Johnson & Johnson (JNJ)

Johnson & Johnson is recovering from settling opioid lawsuits and the stock is in a positive technical breakout across all the indicators. The price has moved strongly above the negative price channel from June and is likely to retest prior highs around 145/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 am/we are long FNGD. 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.