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 160 weeks of public selections as part of this ongoing live forward-testing research.
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 monthly Growth & Dividend MDA breakout stocks. I now provide 6 different ways to beat the S&P 500 since my trading studies were made public.
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 frequent multiple 10% gainers in a single week. More than 200 stocks have gained over 10% in a 5-day trading week since this MDA testing began in 2017.
2020 YTD Breakout Portfolio Returns
The Breakout Picks are high volatility selections for short term gains, but with no selections below $2/share, under 100k avg daily volume, or less than $100 million market cap. The returns were at +41.50% in the first 9 weeks of 2020, consistent with exiting the portfolio following the negative Momentum Gauge™ signal of Feb. 24th (red weeks below).
The cumulative average returns YTD are +108.7% compared to the S&P 500 -5.86% over the same period. The very best case timed returns at +241.4% and in the worst case, fixed buy/hold, do nothing, equal weighted returns through Week 24 the returns are -23.96%.
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So far YTD, 36 stock selections in the past 24 weeks have gained over 10% in less than 5 days with 14 of those short term picks gaining over 19% and as high as +77%. I have removed the best case returns from the chart below as it begins to distort the chart between the very worst possible returns and the actual S&P 500 returns shown below.
(Source: Value & Momentum Breakouts)
The best case average weekly returns are +10.06% and worst case average -1.0% YTD as shown below. These returns include trading against all the Negative Momentum Gauge signal warnings which increases your risk of declines, but are conducted without interruption for testing and measurement purposes.
(Source: Value & Momentum Breakouts)
You can see how each of the 7 prior events numbered above relate to the Momentum Gauge topping signals shown below. These forecasted market tops are detailed in my recent article as we look for a new positive reversal signal:
Revisiting The Signals That Forecasted Every Recent Decline, In Search Of Early Recovery Indicators
Over the years, the evidence is clear that timing your investments during the most positive momentum periods greatly enhances your weekly returns. We have recently experienced a new Positive Momentum Gauge™ signal on April 23rd that may mark a longer term recovery point.
(Value & Momentum Breakouts)
Market Conditions into Week 25
Tuesday continues with historical patterns well documented in published research as the best day of the week, especially in weeks with FOMC meetings and the current POMO schedule. Friday has turned positive this week as a new contributing day of the week to the S&P 500 YTD gains. Research studies discussed in the Members’ Library show that this is a pricing behavior patterned on the Fed’s strong intervention activity. Last year with less Fed intervention, Friday’s were by far the best day of the week.
Extreme volatility continues into 2020 now with 36 daily moves greater than +/- 2% on the S&P 500 in just the past 3 months. These are more daily +/- 2% moves than the years 2012, 2013, 2014, 2016, 2017, and 2019 COMBINED. If these events were to continue at the same rate as the first half of the year we would see record level volatility near 2008 numbers. It is highly likely we will see continued high volatility in the weeks ahead.
We can confirm the Fed added $16.4 billion in additional easing this week down again from the lower levels of $25.4 billion in assets in the prior Week 23. Combined, this brings the total easing to around $2.34 trillion in liquidity just the past 6 months. The Federal Reserve’s balance sheet is at the highest level in US history to over $7 trillion.
System Open Market Account Holdings – FEDERAL RESERVE BANK of NEW YORK
The Weekly Momentum Gauge™ chart shows continued positive conditions from the Apr 27 crossover signal as well as the strong relationship with Fed stimulus activity. The Weekly Momentum Gauge™ chart below also shows the Fed’s easing activity in dark blue. This week saw continued declines in easing at low levels from $25.4 billion the prior week to $16.4 billion this current Week 24 back inline with pre-pandemic levels of Fed intervention. These recent weeks of low levels of Fed intervention may be contributing to the slowing of the market rally this week and the first weekly downturn in a month. Fed reductions in Weeks 18 & 19 preceded the first S&P 500 declines in the rally from March lows. Weeks 22 through 24 show further reductions in Fed easing and an increased probability of similar market reactions as Weeks 28 & 19 with higher volatility.
(Value & Momentum Breakouts)
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 MDA momentum gauges have correctly called every major market direction change since they began. The more detailed daily Momentum Gauges are reserved for members of my subscription service. These movements and signals were updated in more detail through the Daily Update articles this past week:
- V&M Breakout Morning Update – June 12: S&P 500 Rebounding From 3000 Support Test Yesterday Near 3060 Key Level Premarket. Fed Eased $16.4 Billion In Week 24
- V&M Breakout Morning Update – June 11: S&P 500 Broke Key 3180 Support Overnight, Jobless Claims At 8:30am ET, Start Of The 36th 2% Daily Move – Most Since 2009.
- V&M Breakout Morning Update – June 10: S&P 500 Holding Above 3200 Key Support With Federal Reserve FOMC Rate Decision And Guidance Today
- V&M Breakout Morning Update – June 9: S&P 500 Down To 3200 Premarket With The Tues/Wed Most Positive Weekly Pattern On Deck With Momentum Gauges™ At Record High Positive Levels
- V&M Breakout Morning Update – June 8: Fed Eased $25.4 Billion Last Week And S&P 500 Above 3200 Premarket With Momentum Gauges™ At Record Positive Levels
The Week 25 – 2020 Breakout Stocks for next week are:
The selections consist of one Financial, one Healthcare, one Technology and one Industrials sector stock.
- Aspen Aerogels (ASPN) – Industrials / Building Products & Equipment
- Exicure (OTC:XCUR) – Healthcare / Biotechnology
Aspen Aerogels (ASPN) – Industrials / Building Products & Equipment
Price Target: $9.00
Aspen Aerogels, Inc. designs, develops, manufactures, and sells aerogel insulation products primarily for use in the energy infrastructure and building materials markets worldwide. The company offers Pyrogel XTE that reduces the risk of corrosion under insulation in energy infrastructure operating systems; Pyrogel HPS for applications within the power generation market; Pyrogel XTF to provide protection against fire; Cryogel Z for sub-ambient and cryogenic applications in the energy infrastructure market; and Spaceloft Subsea for use in pipe-in-pipe applications in offshore oil production.
Exicure (OTC:XCUR) – Healthcare / BiotechnologyPrice Target: $3.50
Exicure, Inc., a clinical-stage biotechnology company, develops therapeutics for immuno-oncology, genetic disorders, and other indications. Its three clinical programs include AST-008, which is in a Phase I clinical trial, an SNA consisting of toll-like receptor 9 that is designed for immuno-oncology applications; XCUR17, which is in a Phase I clinical trial, an SNA that targets the messenger RNA encoding interleukin 17 receptor alpha, a protein that helps in the initiation and maintenance of psoriasis; and AST-005, which is in a Phase I clinical trial, an SNA that targets TNF for the treatment of mild to moderate psoriasis.
Strong 2020 MDA breakout stocks
A sample of prior 2020 selections that may have continued longer term positive momentum without detailed analysis are:
- Celsius Holdings (CELH) +92.1%
- EverQuote (EVER) +47.8%
- Vipshop Holdings (VIPS) +18.9%
- SolarEdge Tech (SEDG) +38.8%
- Mersana Therapeutics (MRSN) +253.5%
- Simulations Plus (SLP) +47.2%
- Malibu Boats (MBUU) +27.3%
- Meridian Bioscience (VIVO) +90.7%
- Zynex Inc. (OTC:ZYXI) +74.1%
- Zoom Video (ZM) +95.7%
- Zumiez Inc. (ZUMZ) +20.8%
- Skechers U.S.A. (SKX) +20.1%
- Super Micro Computer (SMCI) +25.4%
Top Dow 30 Stocks to Watch for Week 25
Applying the same MDA 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 may provide some strong additional basis for investors to judge future momentum performance for mega-cap stocks in the short- to medium-term. The most recent picks of weekly Dow selections:
|Symbol||Company||Current % return from selection|
|(PG)||Procter & Gamble||-0.26%|
|(TRV)||The Travelers Companies||+12.10%|
The Dow picks for next week are:
Cisco Systems (CSCO)
Cisco suffered a sharp decline with much of the market on Thursday, but investor sentiment remains highly positive with strong net MFI inflows that may be signalling a buy-the-dip opportunity in short term oversold conditions. First level resistance is at 48/share with strong earnings beat on May 13th still driving longer term positive momentum.
Background on Momentum Breakout Stocks
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.
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.
My general Market Outlook was released in the SA Roundtable Edition and my views have not changed as the market recovers primarily on record levels of stimulus.
All the very best to you, stay safe and healthy and have a great week of trading!
JD Henning, PhD, MBA, CFE, CAMS
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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.