The Weekly Breakout Forecast continues my doctoral research analysis on MDA breakout selections over more than five years. This subset of the different portfolios I regularly analyze has now reached 176 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 more than six different ways to beat the S&P 500 since my trading studies were made public.
Remarkably, the frequency streak of 10% gainers within a four- or five-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 five-day trading week since this MDA testing began in 2017. A frequency comparison chart is at the end of this article.
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 average daily volume, or less than $100 million market cap. The returns were at +41.50% in the first nine 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 at +212.4% compared to the S&P 500 +2.09% over the same period. The very best case perfectly timed returns at +431.6%, and in the worst case, fixed buy/hold, do nothing, equal-weighted average returns year to date, the returns are -0.17%.
So far YTD, 60 stock selections in the past 39 weeks have gained over 10% in less than five days with 31 of those short-term picks gaining over 15% and one pick as much as +132.6%. 2020 MDA picks are on track for much higher breakout frequencies than last year’s results as shown at the end of this article. 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 +11.07% and worst-case average -0.17% 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 eight prior events numbered below relate to the Momentum Gauge topping signals on the S&P 500 chart below. These forecasted market tops are detailed in my recent article: An Election Year Correction Signal And Only The 3rd Negative Weekly MG Signal In 2020.
Over the years, the evidence is clear that timing your investments during the most positive momentum periods greatly enhances your weekly returns.
(Value & Momentum Breakouts)
Market Conditions into Week 40
Tuesday continues with historical patterns well documented in published research as the best day of the week, especially in weeks with FOMC meetings. Research studies discussed in the Members’ Library show that this is a pricing behavior patterned on the Fed’s strong intervention activity called pre-FOMC drift. Last year with less Fed intervention, Fridays were by far the best day of the week.
The S&P 500 index delivered the last high volatility ±2% move on Sept 23rd. Use caution as volatility tends to group in frequency. There have now been 42 daily moves greater than ±2% on the S&P 500 since February, including daily moves as large as -11.98%. These are more daily +/- 2% moves than the years 2012, 2013, 2014, 2015, 2016, 2017, and 2019 COMBINED. If the second half of 2020 continues like the first half, we will have more record volatility days than 2008 during the financial crisis.
We can confirm the Fed purchased $43.9 billion in domestic securities this past week up significantly from $67.9 billion the prior week 38. This is favorable to the markets and continues at a level above normal Fed operations and pre-pandemic levels. This brings the total easing to around $2.6 trillion in liquidity just the past seven months. The Federal Reserve’s balance sheet is at the highest level in US history to over $7.2 trillion.
System Open Market Account Holdings – Federal Reserve Bank of New York
The Weekly Momentum Gauge® turned negative again in a pattern somewhat similar to the Jan/Feb topping pattern. The Fed’s declining stimulus activity is shown in dark blue from the SOMA holdings report to heightened levels several times above normal operations pre-pandemic.
(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 – September 25: Markets Lower With USD And VIX Higher, Fed Easing This Week At $43.9 Billion And Precious Metals Still Falling
- V&M Breakout Morning Update – September 23: Markets Are Higher Premarket With The VIX Elevated At 31 And Precious Metals Lower With Silver -3.2%
- V&M Breakout Morning Update – September 22: Momentum Gauges® Back In Negative Signal As Record Volatility Continues With Our 87th S&P 500 Daily Move Over ±1% And S&P 500 Up 1.56% YTD
- V&M Breakout Morning Update – September 21: Election Volatility Compounded By Death Of Supreme Court Justice Ginsburg With S&P 500 Below Key 3300 Level And Euro Stocks Down -3.3%
The Week 40 – 2020 Breakout Stocks for Next Week
The selections this week consist of two Technology, one Healthcare, and one Real Estate sector stock based on strong Friday scores. These stocks are released to members in advance every Friday morning and are already up an average +1.51% led by MobileIron (NASDAQ:MOBL) +12.5% from release to members and more room to run. Two samples are below:
- MobileIron Inc. – Technology/Software – Application
- Redfin Corp (RDFN) – Real Estate/Real Estate Services
MobileIron Inc. – Technology/Software – Application
Price Target: $7.50
MobileIron, Inc., together with its subsidiaries, provides mobile IT platform that enables enterprises to manage and secure mobile applications, content, and devices while offering their employees with device choice, privacy, and a native user experience worldwide. It offers MobileIron security platform, which includes MobileIron unified endpoint management, a security platform that provides the fundamental visibility and IT controls to secure, manage, and monitor various corporate or employee-owned mobile devices or desktops that access business-critical data; MobileIron Access to block untrusted devices and applications from accessing cloud services based on security posture and compliance, as well as provide zero sign-on; and MobileIron Tunnel that provides connectivity through a per-app VPN to connect applications to back-end services.
Redfin Corp – Real Estate/Real Estate Services
Price Target: $55.00
Redfin Corporation operates as a real estate brokerage company in the United States and Canada. The company operates an online real estate marketplace and provides real estate services, including assisting individuals in the purchase or sell of home. It also provides title and settlement services; originates and sells mortgages; and buys and sells homes.
Top Dow 30 Stocks to Watch for Week 40
Applying the same MDA breakout model parameters to the 30 stocks on the Dow Index 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 in pairs for the last five weeks:
|Symbol||Company||Current % return from selection Week|
|(MRK)||Merck & Co.||-3.27%|
|(JPM)||JPMorgan Chase & Co.||-9.71%|
|(AXP)||American Express Co.||-8.91%|
|(PFE)||Pfizer Inc.||-6.99% now removed from the DJIA|
If you are looking for a much broader selection of mega-cap breakout stocks beyond 30 Dow stocks with detailed analysis and strong returns, I would recommend the Growth & Dividend MDA Breakout picks released monthly for long-term total return:
The Dow Pick for Next Week
The Procter & Gamble Co. (PG)
PG is a strong defensive stock with the most positive technical indicators on the poorly performing Dow 30 stocks with strongly improving sentiment indicators on ULT and RSI. The price trend remains negative through September, but there are some potentially positive signs as net MFI inflows start to increase again from the strongest selloff since May.
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 four 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.
Top Piotroski-Graham Long Term Value Stocks : Mid-Year 2020 Selections are up +6.91% as value continues to hold up well.
The actively traded V&M Premium Portfolio is up +19.27% YTD and remains in cash following the Momentum Gauge® signal.
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.