- Two sample Breakout Stocks for Week 2 with better than 10% short-term upside potential and one sample Dow 30 stock pick.
- The streak of weekly selections gaining over 10% in less than 4 or 5 trading days continues to 112 out of 138 trading weeks (81.16%).
- The Federal Reserve conducted an “organic QT” tightening event in Week 1 of -$11.3 billion, ending the streak of 10 consecutive weeks adding $161.5 billion in liquidity.
- The Momentum Gauges closed Friday at positive 87 and negative 29, falling to the lowest positive levels since the first week of December and highest negative since October.
- Markets were also severely disrupted Friday by the Middle East events and it is not clear if the top screened selections will sustain into next week or were a one-day distortion from news.
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 138 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 Growth & Dividend MDA breakout 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 138 weeks (81.16%) 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, $100M market cap, and greater than 100k average daily volume. 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 screening process to approximately 40 initial choices per week with 4 stocks finally selected from over 7,800 available stocks across the US exchanges each week.
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.(Value & Momentum Breakouts)
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 in 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:
The bull/bear ETF trading signal page now includes many more combination trades sets as promised:
- MicroSecotors FANG+ 3x Index bull/bear (FNGU)/(FNGD) +156.45%
- Direxion Daily S&P 500 3x bull/bear (SPXL)/(SPXU) +103.70%
- SPDR S&P 500 (SPY)/ ProShares Short S&P 500 (SH) +30.78%
- Alpha Architect Intl Momentum (IMOM)/Dorsey Wright Short (DWSH) +35.45%
- ProShares UltraPro Nasdaq 3x bull/bear (TQQQ)/(SQQQ) +115.76%
- Direxion Daily 3x Small Cap bull/bear (TNA)/(TZA) +130.95%
- Direxion Daily 3x Biotech bull/bear (LABU)/(LABD) +109.64%
- MSCI 3x Emerging Market Index bull/bear (EDC)/(EDZ) +33.37%
- VIX Index 1.5x bull/bear (SVXY)/(UVXY) +94.56%
Market Conditions into Week 2
The Friday positive anomaly remains strong and delivered nearly 50% of all the gains on the S&P 500 in 2019. So far into 2020, Thursday has been the most positive day and Friday was the worst day due to unforeseen events in the Middle East.
(Value & Momentum Breakouts)
The Fed SOMA page linked below shows that 10 consecutive weeks of easing came to an end in December with -$11.3 billion in “organic tightening.” This brings the total easing down to $150.2 billion in liquidity over the past 11 weeks. Fed easing was a very positive condition for the markets between 2009 and 2017, it has only returned in limited form since July 31, 2019.
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 are seeing our first week of positive momentum declines and a rise in negative momentum last seen in October. This could be an early market topping signal and final confirmation occurs when the red line crosses above the green line on the chart.
(Value & Momentum Breakouts)
The more detailed Daily Momentum Gauge timing signal is reserved for members and has been expanded to more closely examine the past 3 months. The Momentum Gauges closed Friday after hours at 87 Positive and 29 Negative. 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 through the Daily Update articles this past week:
- V&M Breakout Morning Update – Jan. 3: Regional Escalation With Iran Sending Oil Prices Higher And Markets Down Over 1% Premarket
- V&M Breakout Morning Update – Jan. 2: New Year Begins With Markets Surging And Retesting New All-Time Highs
- V&M Breakout Morning Update – Dec. 31: Major Indexes Showing Early Signs Of Pull Back With Positive Gauges Down 4 Days From Recent Highs
- V&M Breakout Morning Update – Dec. 30: New Year’s Week – Fed Eased $25.6 Billion Last Week And Another Short Trading Week Begins With Markets Heading To New 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.
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 are weakening since the positive signal returned on October 15th. However, a small sample from prior weekly selections that may have some continued positive momentum without detailed analysis are:
- StoneCo Ltd. (STNE) +40.51%
- Arvinas Inc. (ARVN) +56.82%
- Vipshop Holdings (VIPS) +94.14%
- Sonos Inc. (SONO) +14.34%
- BEST Inc. (BEST) +15.52%
- Kindred Biosciences (KIN) +19.35%
- Molecular Templates (MTEM) +108.09%
- Napco Security Technologies (NSSC) +6.53%
- 51job Inc. (JOBS) +22.82%
- PCTEL Inc. (PCTI) +18.10%
- Glu Mobile (GLUU) +13.11%
- Tidewater (TDW) +24.51%
- Pfenex Inc. (PFNX) +16.26%
- The Meet Group (MEET) +32.81%
- Cutera Inc. (CUTR) +2.60%
- SolarEdge Technologies (SEDG) +23.50%
- Nordic American Tankers (NAT) +148.77%
- 360 Finance (QFIN) +10.93%
- Corporacion America Airports (CAAP) +20.37%
- Revolve Group (RVLV) +1.18%
- Adesto Technologies (IOTS) +4.38%
The Week 2 – 2020 Breakout Stocks for next week are:
The Week 2 stock sample comes from two Industrial Goods, one Basic Materials and one Technology sector stocks. After 6 weekly tests of premarket selection through December that reduced the frequency of 10% gainers, the MDA picks have returned to normal open market selection in advance for members on Friday for the best possible signals and are already up significantly.
- AeroVironment (AVAV) – Industrial Goods / Aerospace/Defense products
- The Rubicon Project (RUBI) – Technology / Application Software.
AeroVironment – Industrial Goods / Aerospace/Defense products
Price Target: $75.00
|Jan-03-20 09:34 AM||The Market Timing Secrets No One Talks About – January 03, 2020 Zacks|
|Dec-23-19 02:14 PM||Is AeroVironment, Inc. Struggling With Its 8.9% Return On Capital Employed? Simply Wall St.|
|Dec-14-19 07:18 PM||Is AeroVironment, Inc. A Good Stock To Buy? Insider Monkey|
AeroVironment, Inc. designs, develops, produces, supports, and operates a portfolio of products and services for government agencies and businesses. The company offers unmanned aircraft systems (UAS) and related services primarily to organizations within the U.S. Department of Defense and to international allied governments; and tactical missile systems and related services to organizations within the U.S. government. It also provides small UAS products, including spare equipment, alternative payload modules, batteries, chargers, repair services, and customer support.
The Rubicon Project – Technology / Application Software.
Price Target: $11.00
|Jan-03-20 09:15 AM||Stocks Rally Into 2020 Zacks|
|Jan-02-20 07:30 PM||Rubicon Project to Present at Needham Growth Conference Business Wire|
|Dec-31-19 08:17 AM||The Rubicon Project, Boeing, Tesla, Weichai Power and SPX highlighted as Zacks Bull and Bear of the Day Zacks|
|Dec-31-19 06:00 AM||Bull Of The Day: The Rubicon Project Zacks|
The Rubicon Project, Inc., together with its subsidiaries, provides technology solutions to automate the purchase and sale of digital advertising inventory for buyers and sellers in the United States and internationally. It offers applications and services for digital advertising inventory sellers, including websites, mobile applications, and other digital media properties, to sell their advertising inventory; applications and services for buyers, such as advertisers, agencies, agency trading desks, and demand side platforms, to buy advertising inventory; and a marketplace over which such transactions are executed.
Top Dow 30 Stock to Watch for Week 2
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 picks were Apple Inc. (AAPL) +2.63% and Pfizer, Inc. (PFE) -0.99% both suffering their largest declines on Friday due to events in the Middle East. As forecasted last week, AAPL reached its $300/share all-time high price target before pulling back.
The Dow picks for next week were selected on Friday with strong effects from news of escalation tensions with Iran. Whether these selections are distortions from this event for a one-day move or can sustain into Week 2 remains to be seen. More error is introduced in the stock screen when significant external events impact the market reactions.
The Dow 30 pick for next week is: Chevron Corp. (CVX)
Chevron broke out of a strong negative price channel from August on strong momentum and positive investor sentiment on news in the Middle East that significantly impacted oil prices. Average True Range is at the lower bound and shows this potential breakout has room to run with increasing net inflows short term.
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.