- Two sample Breakout Stocks for Week 1 with better than 10% short-term upside potential and one sample Dow 30 stock pick.
- A review of 2019 results shows the high frequency breakout success and several strategies to consider to enhance your returns into 2020.
- The streak of weekly selections gaining over 10% in less than 4 or 5 trading days continues to 112 out of 137 trading weeks (81.75%).
- The Federal Reserve conducted another “organic QE easing” this week of $25.6 billion. Extending to 10 consecutive weeks a total of $161.5 billion in liquidity has been added.
- The Momentum Gauge™ closed Friday at positive 113 and negative 21 consistent with the positive signal since October 15th.
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 137 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 at members’ request into 2020, I now generate 4 selections each week, 2 Dow 30 picks, and a separate article for the new Growth & Dividend MDA stocks.
Remarkably, the frequency streak of 10% gainers within a 4- or 5-day trading week remains at highly statistically significant levels of 112 out of 137 weeks (81.75%), not counting multiple 10% gainers in a single week. 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
As I have documented before from my research over the years, these MDA breakout picks were designed as high frequency gainers.
The point to be made is that the Momentum Breakout model was designed to increase the frequency, i.e. the rate over time, for selecting stocks that make greater than 10% moves. I know that when using the arbitrary period of 1 week (4 or 5 trading days) this model is consistently outperforming the market at more than 4 times the expected market frequency. So what if I take a look at longer momentum survivors? Can we see decay in performance among the top stock selections? ~ Value & Momentum Breakouts 2017
The frequency percentages remain very similar to returns documented here on Seeking Alpha since 2017 and at rates that greatly exceed the gains of market returns by 2x and as much as 5x in the case of 5% gains.
(Value & Momentum Breakouts)
These percentages reflect the results from 208 MDA breakout selections through 2019 across 52 weeks with 4 stocks selected each week. MDA selections are restricted to stocks above $2/share and an additional Stock Market column was added to compare similar groups that exclude high volatility penny stocks below $2/share. The MDA selection process is detailed in many reference materials showing the reduction from over 7,800 available stocks across the US exchanges down to an average of 40 choices per week from which 4 stocks are selected each week.
While the model demonstrates effectiveness over time with larger samples, I have not overcome normal modeling errors. Certainly the model cannot differentiate accurately between selecting the 4 best short-term stocks from 7,800 (0.05%) or 40 from 7,800 (0.51%) from the initial stock screen. People often ask which stock is the best of the four stocks for the week. It would hubris for me to contend that the MDA screening process can distinguish accurately between 0.05% and 0.51% with normal modeling error and large unpredictable factors that impact the stock market daily. These selections are simply designed to provide short-term advantages without any guarantees and with continuous efforts towards improvement.
Strategies to Consider
While I have published quite a few articles and presentations on optimizing breakout gains (i.e. optimal holding periods, optimal exit signals, and optimal trading strategies) along with excellent contributions from members, here is one more idea that may benefit you.
Rather than try to capture the largest possible gains, one member suggested to me that he tries to capture a fixed weekly 1-2% gain per week. Clearly if you can apply this approach through stop loss and preset sale prices, the odds are highly in your favor to produce market-beating results in this way. For example, 176 out of 208 stocks achieved a 2% gain at some point in fewer than 5 trading days.
Capitalizing on this high frequency low % trade strategy could be another way, despite high trading costs, to produce very significant results especially compounding as frequently as weekly.
The all-time total return is now +102.93% worst case, fixed buy/hold, equal weight, and without application of the Momentum Gauge™ signals to avoid market downturns.
These returns continue to outpace the S&P by over 3.5x after nearly three years using the signals. Avoiding trades during the weeks when the Momentum Gauge™ signals turned negative as shown within the four numbered monthly periods outlined on the chart below has greatly increased total returns over 120% since inception.
The signals remain highly positive from the last October 15th buy signal and you can see how these 4 events above relate to the Momentum Gauge tops shown below. Timing your investments during the most positive momentum periods greatly enhances your weekly returns. Additionally, the Friday positive anomaly is a very key factor accounting for more than 50% of all the gains in the S&P 500 YTD 2019.
(Value & Momentum Breakouts)
The Momentum Gauge™ signals are also the basis of a significant new market neutral trading model released here for subscribers to use with bull/bear ETF combinations or just to avoid significant market downturns:
(Value & Momentum Breakouts)
The bull/bear ETF trading signal page now includes many more combination trades sets as promised:
- MicroSectors FANG+ 3x Index bull/bear (FNGU)/(FNGD) +152.80%
- Direxion Daily S&P 500 3x bull/bear (SPXL)/(SPXU) +104.57%
- SPDR S&P 500 (SPY)/ ProShares Short S&P 500 (SH) +30.93%
- Alpha Architect Intl Momentum (IMOM)/Dorsey Wright Short (DWSH) +36.84%
- ProShares UltraPro Nasdaq 3x bull/bear (TQQQ)/(SQQQ) +114.91%
- Direxion Daily 3x Small Cap bull/bear (TNA)/(TZA) +132.83%
- Direxion Daily 3x Biotech bull/bear (LABU)/(LABD) +124.88%
- MSCI 3x Emerging Market Index bull/bear (EDC)/(EDZ) +35.14%
- VIX Index 1.5x bull/bear (SVXY)/(UVXY) +94.81%
Market Conditions into Week 1
The Friday positive anomaly remains strong and continues to deliver nearly 50% of all the gains on the S&P 500 YTD. We will see if this unusual condition carries into 2020.
(Value & Momentum Breakouts)
The Fed SOMA page linked below shows a 10th consecutive week of easing with $25.6 billion added to the Fed’s balance sheet this week. This brings the total easing to $161.5 billion in liquidity just over the past 10 weeks. Easing has been a very positive condition for the markets since the Fed started in 2009. We may continue to experience very positive effects in the large gains of the Piotroski, Premium, and Breakout portfolios.
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 chart shows confirmation of a positive momentum signal from Oct 15th on the daily momentum chart. We will continue to watch for weekly confirmation as the Fed easing is likely helping the market sustain this very strong run.
(Value & Momentum Breakouts)
The more detailed Daily Momentum Gauge™ chart is reserved for members and has been expanded to more closely examine the past 3 months. The Momentum Gauges™ closed Friday after hours at 113 Positive and 21 Negative. We have been on an extended bull run with very positive scores continuing. We may be seeing early signs of decay in the signals in advance of another market pullback. These movements and signals were updated in more detail for subscribers through the Daily Update articles this past week:
- V&M Breakout Morning Update – Dec 27: Fed Eased $25.6 Billion In A Short Trading Week And Markets Heading To New Highs
- V&M Breakout Morning Update – Dec 26: Shortened Trading Week With Santa Claus Rally Expected To Start The New Year
- V&M Breakout Morning Update – Dec 23: Shortened Trading Week And Markets Continue To New All Time Highs
- V&M Breakout Morning Update – Dec 20: Triple Witching Friday And The Fed Eased Another $17.1B While Markets Continue To New All-Time Highs
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 1 – 2020 Breakout Stocks for next week are:
The Week 1 stocks consist of two Technology, one Financial and one Consumer Goods sector stocks. The sample for this week are:
- Celsius Holdings (CELH) – Consumer Goods/Beverages
- Adesto Technologies (IOTS) – Technology/Data Storage Devices
|Dec-20-19 04:17PM||Hedge Funds Have Never Been This Bullish On Celsius Holdings, Inc. Insider Monkey|
|Dec-19-19 09:56AM||Zacks.com featured highlights include: Universal Forest Products, ACM Research, Celsius Holdings, Sony and LexinFintech Zacks|
|Dec-18-19 09:07AM||Darling Ingredients in Focus: Stock Moves 7.5% Higher Zacks|
|Dec-18-19 08:30AM||5 Profitable Stocks Boasting Amazingly High Net Income Ratio Zacks|
Celsius Holdings, Inc. develops, markets, distributes, and sells functional calorie-burning fitness beverages in the United States and internationally. The company offers its beverages in various flavors, including carbonated orange, wild berry, cola, grape, kiwi-guava, and watermelon; and non-carbonated green tea raspberry/acai, green tea/peach mango, pineapple coconut, watermelon berry, and strawberries and cream, as well as sparkling grapefruit, cucumber lime, and orange pomegranate under the Celsius name.
|Dec-14-19 08:41PM||Hedge Funds Have Never Been This Bullish On Adesto Technologies Corporation Insider Monkey|
|Nov-20-19 09:00AM||Adesto® to Participate at the Benchmark Discovery Conference on December 4 GlobeNewswire|
|Nov-13-19 07:41PM||Canaccord: 3 Small-Cap Tech Stocks With Over 40% Upside TipRanks|
|Nov-12-19 04:00AM||New Smart Meter using Adesto’s Memory and Communications Technologies Begins Pilot Program in Africa and Middle East GlobeNewswire|
Adesto Technologies Corporation provides application-specific semiconductors and embedded systems that comprise essential building blocks of Internet of Things (IoT) edge devices operating on networks worldwide. Its portfolio of semiconductor and embedded technologies are optimized for connected IoT devices and systems used in industrial, consumer, communications, and medical applications. Its offerings enable customers to differentiate their IoT systems and product designs. The company’s technology is used in various connected products, such as smart utility meters, wearable fitness trackers and medical monitors, home automation, building control systems, fleet management systems, and satellite communications applications.
Top Dow 30 Stock to Watch for Week 1
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.
The Dow pick for next week is:
Apple Inc. (AAPL)
Apple remains in strong technical breakout since clearing the $270/share price resistance when AAPL was previously selected as a breakout Dow stock. All the indicators remain highly positive with high net inflows. Short-term price target is around 300/share. Indicators are all slightly overbought with MFI net inflows still increasing with room to push the price higher in the coming weeks.
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. The Bounce/Lag picks are now no longer provided as a public weekly article and remain a private feature along with the Premium Portfolio.
New MDA breakout Growth & Dividend stocks have started for 2020 and will be tracked over the coming year!
All the very best to you and have a great week of trading!
JD Henning, PhD, MBA, CFE, CAMS
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Disclosure: I am/we are long FNGU. 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.