- Two sample Breakout Stocks for Week 4 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 114 out of 140 trading weeks (81.43%).
- This past Week 3, two stocks gained more than 10% in less than 4 or 5 trading days, ending the week with MRSN +42.73% and CALA +24.50%.
- The Federal Reserve conducted an “organic QE” easing event in Week 3 of +$10.5 billion. Delivering increased liquidity in 12 of the past 13 weeks.
- The Momentum Gauges™ closed Friday at positive 90 and negative 21, maintaining positive conditions from the last buy signal on Oct 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 140 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 above 80% not counting the 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 avg 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.
(Source: Value & Momentum Breakouts)
These breakout picks skew highly positive for high-frequency short-term gains in less than 5 days as documented over the past 3 years. 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.
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 has been 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:
Strongest Market Timing Signals To Enhance Bull/Bear ETF Returns(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) +188.81%
- Direxion Daily S&P 500 3x bull/bear (SPXL)/(SPXU) +114.95%
- SPDR S&P 500 (SPY)/ ProShares Short S&P 500 (SH) +33.97%
- Alpha Architect Intl Momentum (IMOM)/Dorsey Wright Short (DWSH) +39.86%
- ProShares UltraPro Nasdaq 3x bull/bear (TQQQ)/(SQQQ) +133.25%
- Direxion Daily 3x Small Cap bull/bear (TNA)/(TZA) +139.93%
- Direxion Daily 3x Biotech bull/bear (LABU)/(LABD) +123.58%
- MSCI 3x Emerging Market Index bull/bear (EDC)/(EDZ) +44.22%
- VIX Index 1.5x bull/bear (SVXY)/(UVXY) +102.43%
Market Conditions into Week 4
The Friday positive anomaly 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 Tuesday has been the worst day primarily due to external news events over this short sample period.(Value & Momentum Breakouts)
Fed intervention delivered easing of $10.5 billion on Wednesday, Jan 15th, that brings easing back in 12 of the past 13 weeks. This brings the total easing to $179.5 billion in liquidity just over the past 13 weeks. Fed easing was a very positive condition for the markets between 2009 and 2017, and 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 third consecutive week of positive momentum declines on the weekly average. This could be an early market topping signal. Final confirmation occurs when the red line crosses above the green line on the chart.
(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 90 Positive and 25 Negative.
We have been on a very extended bull run with very positive scores continuing. These movements and signals were updated in more detail through the Daily Update articles this past week:
- V&M Breakout Morning Update – Jan 17: Markets Hit New Highs On Trade Optimism And Fed Easing Another $10.5 Billion.
- V&M Breakout Morning Update – Jan 16: Markets Up To All Time Highs, S&P 500 Above 3,300 And DJIA Above 29,100.
- V&M Breakout Morning Update – Jan 15: Markets Flat Again Ahead Of US-China Phase 1 Trade Agreement Signing, S&P 500 At 3,287 Premarket, Fed Intervention Wednesday.
- V&M Breakout Morning Update – Jan 14: Markets Flat Ahead Of US-China Phase 1 Trade Agreement Signing, Q4 Earnings Begin, S&P 500 At 3,287 Premarket.
- V&M Breakout Morning Update – Jan 13: Fed Eased $18.8 Billion Last Week And Stocks Positive And In Range Of New Highs Premarket
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 4 – 2020 Breakout Stocks for next week are:
The Week 4 stocks consist of two Consumer Goods, one Services and one Industrial Goods sector stock. These selections face a 3-day holiday weekend and a 4-day trading week that typically presents higher uncertainty and lower performance opportunity.
- TopBuild Corp. (BLD) – Industrial Goods/General Building Materials
- Malibu Boats, Inc. (MBUU) – Consumer Goods/Recreational Goods
|Jan-16-20 12:00PM||TopBuild Is Up 1.17% in One Week: What You Should Know Zacks|
|Jan-15-20 10:07AM||Top Ranked Growth Stocks to Buy for January 15th Zacks|
|Jan-15-20 08:56AM||Miscellaneous Building Products Industry Prospects Look Bright Zacks|
|Jan-13-20 08:15AM||These 5 Stocks Boast Impressive Interest Coverage Ratio Zacks|
|Jan-10-20 12:45PM||3 Reasons Why Growth Investors Shouldn’t Overlook TopBuild (BLD) Zacks|
TopBuild Corp. engages in the installation and distribution of insulation and other building products to the United States construction industry. The company operates in two segments, Installation and Distribution. It offers insulation products, rain gutters, glass and windows, fireproofing and firestopping products, garage doors, fireplaces, shower enclosures, closet shelving, accessories, and other products; and residential insulation services. The company also provides various services and tools that are designed to assist builders in applying the principles of building science to new home construction, which includes pre-construction plan reviews, various inspection services, and diagnostic testing
|Jan-16-20 04:30PM||Malibu Boats, Inc. Announces Earnings Release Date and Conference Call Information for Second Quarter Fiscal 2020 Financial Results GlobeNewswire|
|Jan-14-20 03:57PM||CEO of ‘superyacht’ broker: I’m ‘nervous’ about the political situation in 2020 Yahoo Finance|
|Jan-06-20 10:58AM||Top Ranked Growth Stocks to Buy for January 6th Zacks|
|Jan-06-20 09:45AM||Should Value Investors Pick Malibu Boats Stock Now? Zacks|
|Jan-03-20 11:10AM||An Intrinsic Calculation For Malibu Boats, Inc. Suggests It’s 45% Undervalued Simply Wall St.|
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 Stock to Watch for Week 4
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 5-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 sample Dow pick for next week is:
The Travelers Companies, Inc. (TRV)
Travelers in strong short-term technical breakout condition across the indicators. High net inflows, positive investor sentiment and price clearing prior resistance are likely to continue for a strong positive move to 145/share and higher. Q4 earnings is scheduled for Jan 23rd and positive news may already be emerging for the next report.
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 five B/LM picks gained an average 6.30% in Week 3 with one stock gaining over 22%, but these selections are now no longer provided publicly in a weekly article and remain a private feature along with the Premium Portfolio.
New MDA breakout Growth & Dividend stocks have started for 2020 and are already up 3.72% YTD, not counting dividend yields over 2%!
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.