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 141 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.
2020 YTD Breakout Portfolio Returns
The Breakout Picks are up +24.39% worst case, buy/hold, equal weighted returns through Week 5 compared to the S&P 500 -0.50%. Best case average weekly returns are 11.57% and worst case 4.88% YTD as shown below. Week 5 closed with average gains of +1.55% compared to -2.17% for the S&P 500.
(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 Breakout Returns are up +127.32% since inception. These returns continue to outpace the S&P by over 3.5x after 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 to over 140% since inception.
The Momentum Gauge signals turned negative today in a 5th event and for the first time in 2020. You can see how the 4 prior events numbered above relate to the Momentum Gauge tops shown below. These forecasted market tops are detailed in the following article:
Timing your investments during the most positive momentum periods greatly enhances your weekly returns.
(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 is now shifting to inverse market bear funds consistent with the new negative Momentum Gauge signal last Friday.
- MicroSecotors FANG+ 3x Index bull/bear (FNGU)/(FNGD) +186.41%
- Direxion Daily S&P 500 3x bull/bear (SPXL)/(SPXU) +117.07%
- SPDR S&P 500 (SPY)/ ProShares Short S&P 500 (SH) +35.08%
- Alpha Architect Intl Momentum (IMOM)/Dorsey Wright Short (DWSH) +42.83%
- ProShares UltraPro Nasdaq 3x bull/bear (TQQQ)/(SQQQ) +136.26%
- Direxion Daily 3x Small Cap bull/bear (TNA)/(TZA) +139.62%
- Direxion Daily 3x Biotech bull/bear (LABU)/(LABD) +100.02%
- MSCI 3x Emerging Market Index bull/bear (EDC)/(EDZ) +46.93%
- VIX Index 1.5x bull/bear (SVXY)/(UVXY) +118.54%
Market Conditions into Week 6
Fed intervention of +16.7 billion in easing occurred again Wednesday and we can confirm on the Fed’s SOMA page below. The Fed delivered easing of $12.7 billion in Week 4 on Wednesday, Jan. 22nd continuing this policy in 14 of the past 15 weeks. This brings the total easing to $208.9 billion in liquidity just the past 15 weeks. Fed easing was a very positive condition for the markets between 2009-2017, it has only returned in limited form since July 31, 2019. News of the coronavirus and stocks in overbought conditions has spurred the current pullback for the short term.
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 Weekly Momentum Gauge chart has turned negative during Week 5 for the final confirmation when the red line crosses above the green line on the chart. Prior negative events lasted at least two weeks.
(Value & Momentum Breakouts)
The more detailed Daily Momentum Gauge chart below is reserved for members and has been expanded to more closely examine the past 3 months. The Momentum Gauges closed Friday after hours at 69 Negative and 18 Positive. This is the first negative signal for 2020 and the first negative signal since September 25th, 2019.
The MDA momentum gauges have correctly called every major market direction change since they began. These movements and signals were updated in more detail through the Daily Update articles this past week:
- V&M Breakout Morning Update – Jan. 31: Fed Eases $16.7 Billion, Markets Lower Again On Coronavirus Precautions And Momentum Gauges Negative
- V&M Breakout Morning Update – Jan. 30: Fed Holds Rates, Continues Liquidity Programs, DJIA Down -228 Premarket
- V&M Breakout Morning Update – Jan. 29: Momentum Gauge Signal Closed Negative Yesterday, AAPL Blowout Earnings Sends Markets Higher Premarket
- V&M Breakout Morning Update – Jan. 28: Momentum Gauge Signal Still Negative While Market Rebounds Slightly Premarket
- V&M Breakout Morning Update – Jan. 27: Momentum Gauges Turned Negative Friday For The First Time In 5 Months, Markets Selling Off Premarket, Dow -400
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 6 – 2020 Breakout Stocks for next week are:
The Week 6 stocks consist of two Basic Materials, one Financial and one Healthcare sector stock. Use caution with MDA breakout picks during negative Momentum Gauge signal conditions as the broader market risks are greatly increased.
- Federated Investors (FII) – Financial / Asset Management
- Cassava Sciences (SAVA) – Healthcare / Biotechnology
Federated Investors – Financial / Asset Management
Federated Investors, Inc. is a publicly owned asset management holding company. Through its subsidiaries, the firm provides its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organizations, state or municipal government entities, and registered investment advisors. Through its subsidiaries, it manages separate client-focused equity, fixed income, balanced and money market mutual funds along with separate client-focused equity, fixed income, money market, and balanced portfolios.
Cassava Sciences – Healthcare / Biotechnology
Price Target: $11.00
Cassava Sciences, Inc., a clinical-stage drug development company, develops drugs for nervous system disorders. The company’s lead therapeutic product candidate PTI-125, a small molecule drug that is in Phase II clinical trial for the treatment of Alzheimer’s disease. It is also developing PTI-125Dx, a blood-based biomarker/diagnostic to detect Alzheimer’s disease.
Top 2 Dow 30 Stocks to Watch for Week 6
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.
In the prior week, Dow picks of Intel Corp. (INTC) and American Express Company (AXP) both declined through the week due to strong negative market conditions and a pull back across the DJIA. Continue to use caution as the Momentum Gauges have signaled a strong market breakdown period since Jan. 24th.
The Dow picks for next week is:
McDonald’s Corp. (MCD)
McDonald’s continues in strong breakout conditions on the results of Q4 earnings and the strongest same-store sales gains in 10 years. After broader market conditions stop the current decline, the strength here for breakout price growth remains very high.
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 that are now no longer provided publicly in a weekly article and remain a private feature along with the Premium Portfolio.
Also the new MDA breakout Growth & Dividend stocks have started for 2020. New portfolios for February will be released shortly.
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 FNGD. 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.