DO - August MDA Breakout Stocks Week 33 - 2023: Facing The Largest Negative Signal Since February

2023-08-14 15:22:00 ET

Summary

• Two new Breakout Stocks for Week 33 curated by the MDA model for 10% short-term upside along with one Dow pick.
• Last week two of four picks gained over the 10% mark in less than a week with peak gains in EHTH +12.3% and ATEX +15.4% still near highs.
• The Momentum Gauges and S&P 500 Gauges have turned negative, indicating a shift in market momentum and the need for caution in stock selection.
• Momentum signals have reached the most negative levels since the market pullback in February.

Introduction

The Weekly Breakout Forecast continues my doctoral research analysis on MDA breakout selections over more than eight years. This is a high frequency breakout subset of the different portfolios types I regularly release has now reached 320 weeks of public selections as part of this ongoing live forward-testing research. The frequency of 10%+ returns in a week is averaging over 4x the broad market averages in the past six-plus years. Research continues with many more new developments for both stocks and ETFs.

Methodology

Using a statistical model of multiple discriminant analysis (MDA) the weekly selections rely on a combination of fundamental, technical, and behavioral variables to identify changes in the momentum cycle. New MDA charts illustrate two selections for this week: Erasca, Inc. and ProPetro Holding Corp.

These two stock selections show prior breakout signals into Segment 6 positive acceleration (green) for strong gains. The biggest difference is that Erasca has only had one day of a positive signal and ProPetro has been in a positive signal continuously since June 26. These live MDA charts will soon be available for all the stocks on the three largest US exchanges.

Prior to the development of these charts, I relied on years of arbitrary one-week samples to measure if the breakout returns were statistically significant and simulate annual returns. Since the live forward testing started in 2017 on Seeking Alpha, more than 450 stocks have gained more than 10% in less than the measured week. Now it's possible to see when the breakout signal started and sell when conditions change, rather than just using a fixed short term sample holding period.

Many more trading strategies, resources, and explanations about the MDA Breakout methodology are available here.

• Maximizing Market Returns With The Automated Momentum Gauges
• A Visual Explanation Of The MDA Breakout Research

2023 Performance of the MDA Algorithm

• Last week two of four picks gained over the 10% mark in less than a week with peak gains in EHTH +12.3% and ATEX +15.4%, while ATEX continues near the highs.
• The sample portfolio of four picks gained 3.0% in the arbitrary one-week holding period while the S&P 500 declined -0.31%
• The count of weekly portfolios with at least one stock gaining over 10% in less than a week has increased to 257 out of 324 trading weeks (79.3%).
• Over the past 1-year buy/hold the S&P 500 is only up +6.11%.

As long-term investors know , you can compound $10,000 into $1 million with 10% annual returns in less than 50 years. This model serves to increase the rate of 10% breakouts into 52 weekly intervals instead of years.

Prior Selections Potentially in Segment 6

Readers have enjoyed reviewing this list so I will again provide some of the ongoing top performers back to week 15 that may still be in Segment 6 positive momentum.

You'll notice that PUMP was a prior pick back in May when the MDA signals were first showing breakout conditions. For research purposes I do not select a stock from the prior week even though it may still be in breakout conditions. While these picks were only measured for short one-week gains, we can see that some strong momentum gainers continue from nearly every prior week this year. Stocks like MLTX and RIOT are well on their way to joining the V&M Multibagger list.

Currently 81 out of 128 selections (63.2%) have gained more than 5% in their arbitrarily measured week this year. These strong results are not adjusted for positive or negative market MG signals which further improve the results. These returns are consistent with prior years' performances even during Federal Reserve QE stimulus years of 2019 and 2020 over 104 weeks.

Warning: All published results are only possible for members. These stocks are measured from actual release on Friday morning to Friday close. Sample stocks are released publicly over the weekend.

Why do finance companies admit that "timing is everything," but when it comes to investing your money the majority tell their clients to "just buy/hold and try to ignore the downturns?" I submit most investors would rely on timing signals, but without a model like the gauges they're forced to try to keep their clients in buy/hold positions for 24 months with no gains, or worse.

If timing helps you gain just 1% a week or avoid major market downturns, you will significantly outperform all the long term market averages.

We can consistently beat the markets by adjusting our trades to the Momentum Gauges and avoiding the most negative weeks while loading up during the most positive signals. Only the financial industry has incentives to make you to stay in the markets year round.

Momentum Gauges Dashboard for Week 33

The Market and S&P 500 Momentum Gauges have turned negative ending the longest positive signal of 2023. Remember that market momentum is most important, then sector momentum, then stock MDA characteristics. You can be in an excellent stock, but if larger momentum conditions are leading to strong outflows to cash and safety it is harder for your stock to get a bid up in price.

• Guide: Maximizing Market Returns With The Automated Momentum Gauges

You can find my long-term outlook articles here for 2023 that may carry on even longer than I forecasted as the Fed has stated that inflation could remain above their 2% target into 2025:

• US Debt Downgrade And Apple Breakdown, Major Catalysts For A Cyclical Pullback
• Forecasting The S&P 500 For 2023: Year Of The Fed-Pivot And More Record Volatility

Daily Momentum Gauges turned negative after the longest positive signal for 2023 and since January 2021. High negative values usually reflect large market outflows and momentum picks tend to underperform in negative market conditions.

Weekly Breakout Returns

The ongoing competition between the Bounce/Lag Momentum model (from Prof Grant Henning, PhD Statistics) and MDA Breakout picks (from JD Henning, PhD Finance) are shown below with / without using the Momentum Gauge trading signal. The per-week returns equalize the comparison where there were only 16 positive trading weeks last year using the MDA trading signal (negative values below 40).

For 2022, the worst market since 2008: 113 MDA picks gained over 5%, 52 picks over 10%, 22 picks over 15%, and 13 picks over 20% in less than week . These are statistically significant high frequency breakout results despite many shortened holiday weeks.

Historical Performance Measurements

Historical MDA Breakout minimal buy/hold (worst case) returns have a compound average growth rate of 37.1% and cumulative minimum returns of +938.9% from 2017. The minimal cumulative returns for 2022 were -0.21%, average cumulative returns were +67.05%, and the best case cumulative returns were +360.25%. The chart reflects only the most conservative measurements adding each 52 minimal weekly return in an annual portfolio simulation, though each weekly selection could be compounded weekly.

The Week 33 - 2023 Breakout Stocks for next week are:

These sample MDA selections from the full portfolio are released in advance to members every Friday with current gains shown. It's not possible to duplicate published returns without member access to exclusive Friday morning release. Prior selections may be doing well, but for research purposes only new selections are used each week. Documented best results occur when following the gauges.

1. ( Erasca, Inc. ( ERAS ) Stock Price Today, Quote & News)
2. ( ProPetro Holding Corp. ( PUMP ) Stock Price Today, Quote & News)

MDA selections are restricted to stocks above $2/share, $100M market cap, and greater than 100k avg daily volume. Penny stocks well below these minimum levels have been shown to benefit greatly from the model but introduce much more risk and may be distorted by inflows from readers selecting the same micro-cap stocks.

Erasca Inc. - Healthcare / Biotech

Price Target: $4/share (Analyst Consensus + Technical See my FAQ #20)

(Source: Company Resources)

Erasca, Inc., a clinical-stage biopharmaceutical company, focuses on discovering, developing, and commercializing therapies for patients with RAS/MAPK pathway-driven cancers. The company's lead candidates include ERAS-007, an oral inhibitor of ERK1/2 for the treatment of non-small cell lung cancer, colorectal cancer, and acute myeloid leukemia; and ERAS-601, an oral SHP2 inhibitor for patients with advanced or metastatic solid tumors.

ProPetro Holding Corp. - Energy / Oil & Gas Equipment & Services

Price Target: $12.70/share (Analyst Consensus + Technical See my FAQ #20)

(Source: Company Resources)

ProPetro Holding Corp., an integrated oilfield services company, provides hydraulic fracturing, wireline, cementing, and other complementary oilfield completion services to upstream oil and gas companies in the Permian Basin.

Top Dow 30 Stocks to Watch for Week 32

First, be sure to follow the Momentum Gauges® when applying the same MDA breakout model parameters to only 30 stocks on the Dow Index. Second, these selections are made without regard to market cap or the below-average volatility typical of mega-cap stocks that may produce good results relative to other Dow 30 stocks. Third, until the June 1st positive MG signal the Dow has been the worst performing major index with negative returns into May.

The Dow pick for next week is:

Chevron Corp (CVX)

Chevron continues in breakout conditions with a V - U bottoming pattern and high net inflows into the Energy sector as crude oil prices continue to rise. Valuations are excellent 10.4x earnings and 1.42x sales. Analysts have buy ratings and consensus target of 185.50/share.

If you are looking for a much broader selection of large cap breakout stocks, I recommend these long-term portfolios . More details on these value stocks and ETF trading models go out in separate articles.

Conclusion

These stocks continue the live forward-testing of the breakout selection algorithms from my doctoral research with continuous enhancements over prior years. Other portfolio models continue with strong gains and the ETF model has changed to bear funds earlier this week.

All the very best to you, stay safe and healthy and have a great week of trading!

JD Henning, PhD, MBA, CFE, CAMS

For further details see: