www.BreakoutWatch.com

When it comes to trading, breakouts have always attracted attention. This is because they are always associated with making quick profits. But how do you know when a breakout is a breakout? Making that identification is a task that may require hours of pondering over charts. To reduce the time you spend looking for them, you may want to try using the services that www.BreakoutWatch.com offers. As you can probably guess by the domain name, those services tell you which stocks are about to break out from specific patterns.

www.breakoutwatch.com home page

WHAT YOU GET

BreakoutWatch.com gives you a daily list of candidates that are currently in cup-with-handle, flat base, and double-bottom patterns and have the potential to break out in the next trading session. A learning center that walks you through how to use the site - a helpful feature, given the amount of information available - is available on the site. There's also a tutorial that contains several articles designed to help you effectively use the available tools.

Although the algorithm that scans for stocks is proprietary, you know what is being sought. The methodology is explained, in detail, on the website. After the markets close, the entire database is scanned and stocks that meet the breakout criteria are listed by type of breakout-that is, cup with handle (CwH), flat base, and double bottom. Each day, an email is sent out to subscribers with a list of breakout alerts. You also receive alerts via email throughout the trading day, which can be helpful because it gives you the opportunity to catch a stock just when it has broken out.

To see how well the site picks the candidates, I started out by looking for stocks on the CwH watch. There was a list of more than 100 stocks, and to see what features were offered, I started going down the list. When I clicked on the symbol, a daily price chart for the past year - with the cup labeled - was displayed along with volume, relative strength, relative strength rank, and up/down volume ratio. Charts of stocks that are in a flat base have their support and resistance levels displayed. When looking for stocks listed in the double-bottom watch, the two bottoms plus pivot point or the high that forms between the two bottoms is displayed. You'll also find the depth of base, height of pivot, and number of days between the two bottoms.

You do have the option of viewing a weekly chart as well as different periodicities ranging from three months to 36 months. One button on the chart that many of you may find of interest is the CE button. The CE stands for "CANSLIM evaluator," which (as you probably know) is a philosophy of selecting, buying, and selling stocks developed by Investor's Business Daily founder William O'Neil. Each stock is scored based on its CANSLIM qualities. The scoring is based on technical and fundamental criteria, and a higher total score means a stock with more Canslim qualities.

BreakoutWatch.com has come up with a CE zone to make it easy to identify the technical/fundamental score combinations by creating a matrix. A stock that falls in a green 4-4 cell has the highest possible combination of technical and fundamental criteria, whereas a stock that falls in a red 1-1 cell has the lowest combination.

Another feature that is worth mentioning is the industry analysis. Here you'll find various sectors ranked based on technical strength, fundamentals, combined CE, and price. One helpful tool available is the ability to output this data to an Excel spreadsheet. There's also a shortsale watch with associated email alerts for stocks about to break down.

As you can see, when it comes to breakouts, this site tries to cover as much ground as it can. Subscription plans and rates are listed on the website, but before you sign up you do have the opportunity to get a taste of the available features by entering as a guest. This may not give you the daily alerts but it gives you a pretty good idea of what is available.

Overall, www.BreakoutWatch.com's a site worth visiting.

-Jayanthi Gopalakrishnan, Editor
?www.BreakoutWatch.com

www.TheLongWaveAnalyst.ca

Writing in his best-selling book, Conquer The Crash, Elliott wave theoretician Robert Prechter said this about analyst Ian Gordon:

I am convinced that the explanation for such opinions is that these analysts feel optimistic and have to rationalize why. I am aware of only two other writers who see the [Kondratieff] cycle performing in its typical way and with its normal timing. Ian Gordon, who in 1998 began publishing The Long Wave Analyst, is an astute historian and student of the subject.

Who is Ian Gordon, and what is the Kondratieff wave? For answers to those questions, there is no better place to go than Ian Gordon's own website, TheLongWaveAnalyst.ca.

I don't know if there is another source on the Internet that provides as much detail, explanation, and contemporary commentary on the theories of early 20th-century Russian economist Nikolai Kondratieff as this website. That so much of the material here is provided for free only underscores how valuable this resource is for investors and traders, students of economic history, and analysts of contemporary finance.

GETTING TO KNOW NIKOLAI

Nikolai Kondratieff's theories involved his analysis of socioeconomic cycles in modern industrial/capitalist societies. The cycles that Kondratieff uncovered stretched for approximately 50 years, and were propelled by periods of economic expansion and contraction. Kondratieff believed that the data showed a fairly regular, natural pattern through which modern capitalist economies grew and developed. So natural was this pattern that many Kondratieff adherents have used seasonal shorthand to describe the four different stages or cycles that modern economies - and the people who live those economies - go through. (See Figure 1.)

Figure 1: The Kondratieff wave as seasonal cycle

For example, the spring phase of the cycle is generally regarded as a time of emergent expansion - usually after an extended downturn in economic activity. The spring phase is followed by a summer phase, during which economic activity is at its most robust. Generally, it is believed that economic growth begins to be inflationary during the summer phase of the cycle. There is often a recession of some significance between the summer phase and the autumn phase-the recession signifying that the "best" or most healthy part of the economic expansion has concluded.

The autumn phase of the cycle represents both the recovery from the post-summer phase recession and the first stages of a disinflationary trend. This trend tends to coincide with falling interest rates, which peaked during the inflationary growth of the summer phase. As befits a disinflationary market, stocks and bonds tend to do tremendously well during this phase. Falling interest rates boost bond prices, make stocks more competitive with bonds, and introduce a powerful credit cycle that is largely responsible for helping to shift economic activity from production to finance.

The autumn phase is followed, predictably, by the winter phase. During this phase, all those disinflationary chickens come home to roost in what is most often a full-blown deflationary episode. Prices for all assets-from physical assets to financial ones-begin to slip and, before the winter phase is over, eventually plunge to startlingly low levels. The purpose of the winter phase is well put in the infamous quote by Andrew Mellon, President Herbert Hoover's Depression-era Treasury Secretary, who urged:

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted and enterprising people will pick up the wrecks from less competent people."

As is true in nature, so it is with economics in Kondratieff's view. Winter is a time of death, but it is in that death that new life becomes possible. At the bottom of the Kondratieff winter, "enterprising people" indeed "pick up the wrecks," and a new 50-odd year Kondratieff cycle is reborn in spring.

GETTING TO KNOW IAN GORDON

Kondratieff cycles or waves have been plotted back as far as the late 18th century and, again, it is a special treat for those interested in economic or financial history to compare what Kondratieff would anticipate for a given historical period and what actually occurred. For example, contemporary study of Kondratieff waves (or K-waves, as they are often called) has given rise to the notion of "peak" and "trough" wars. "Peak" wars are military conflicts that occur near the top of the upswing in the K-wave, typically during the autumn phase and often in the wake of the recession that marks the end of the summer phase.

Because these wars occur when times are good-and the people generally happy-these wars tend to be contentious ones that divide the country between those who feel the war is necessary and others who feel it is a distraction at best and a senseless adventure at worst. The Vietnam conflict is held up as an example of a "peak" war.

"Trough" wars, by contrast, occur during the bottoming part of the Kondratieff cycle, typically during the winter phase. Military conflicts that occur during K-wave troughs are generally enjoined passionately by a population that is, to put it colloquially, "mad as hell and not going to take it any more." These wars and military conflicts tend to have broad support and patriotic/nationalist fervor runs high. World War II is generally considered to be the classic example of a "trough" war.

The fact that social mood can also be studied and plotted along with the changes in the Kondratieff wave only broadens the appeal and utility of Kondratieff or "long wave" analysis. In the same way that Elliott wave theorists have used social psychology ("socio-nomics") to give color and breadth to their wave analysis, so do K-wave analysts study and interpret popular mood as a way of determining location within the cycle.

What makes TheLongWaveAnalyst.ca such a rewarding website isn't just that all this information (and more) is provided in one place. What makes the website such a knock-your-socks off place to visit is that the designers have incorporated exceptionally clear and attractive graphs, charts, pictures, diagrams, and other visual tools to make the Kondratieff wave theory easy to understand and interpret. With options to show much of the detailed visual information in a variety of formats (as a smaller, pop-up window; a full-screen PowerPoint type display; or as a Flash media presentation), it is hard not to wonder why more potentially complicated subjects in the financial realm aren't presented this way.

Let's look more specifically at the website. On the left hand of the home page is a column of buttons that takes browsers and visitors to different sections of the site. Listed there are options to access "News of Interest," "Chart Analysis," "Lwa in the Media," "Monthly Market Analysis," "Winter Watch Update," the longwaveanalyst.ca newsletter, and a recommended reading list. Below this is a graphic tutorial on the Kondratieff wave; a slide-show presentation on Gordon's long wave approach to Kondratieff; miscellaneous downloads, charts, and graphs, as well as an option for those qualified to open a brokerage account with Canaccord Capital Corp., the money management firm with which Gordon is affiliated.

Some parts of the website remain under construction (at the time of this writing, "Chart Analysis," "Recommended Reading," and "Financing Opportunities" were incomplete). But the overall impression that TheLongWaveAnalyst.ca leaves on the trader, investor, or student of the markets who is curious about Kondratieff wave theory is one of thoroughness. Radio interviews conducted with Ian Gordon, downloadable copies of past newsletters, and the peerless charts, graphs, and slide-show presentations all work together to create a website that truly deserves as much attention as the fascinating economic theory it presents.

-David Penn,
Technical Writer

Suggested reading
Prechter, Robert R., Jr. [2002]. Conquer The Crash: You Can Survive And Prosper In A Deflationary Depression, John Wiley & Sons.
Stoken, Dick [1993]. The Great Cycle: Predicting And Profiting From Crowd Behavior, The Kondratieff Wave, And Long-Term Cycles, Probus Publishing Co.
-www.thelongwaveanalyst.ca


Originally published in the June 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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