Do Weinstein Stage 2 breakouts work? A backtest on 3,000 stocks

The rules we tested

• A weekly close above the highest high of the previous 20 weeks (the base).
• The 30 week average flat during the base and now turning up, with price above it.
• Weekly volume at least twice the average of the previous 10 weeks.
• Relative strength against SPY above its own 52 week average (positive Mansfield relative strength).
• Buy at the next week’s open. Sell on a weekly close more than 3% below the 30 week average, or after two years.
• Stocks above $5 trading at least $5 million a day on average, including companies that later stopped trading.

Every extra rule made it worse

• Breakout on price alone, with the 30 week sell rule: 1.7% behind SPY per trade.
• Adding the base, the rising average and relative strength: 3.1% behind.
• Adding the 2x volume rule, the full Weinstein setup: 3.8% behind.
• Requiring 3x volume: 5.6% behind SPY over 26 weeks.
• Only buying while SPY itself was in Stage 2: 4.3% behind over 26 weeks.
• The first pullback after a breakout: 2.0% behind per trade.

One likely reason: in this period many heavy volume breakouts were earnings gaps that faded.

What the stages are good for

The stage labels themselves do carry information. Stocks in Stage 2 while the market was also in Stage 2 did slightly better than the average stock, about 0.35% over 26 weeks, which is too small to trade. Stocks in Stage 1 and Stage 3 lagged by about 1.4% over 26 weeks. So the stages work better as a list of what to avoid than as a buy signal.

The most recent 18 months

This test covers 2018 to 2026 as one period, so there is no separate check on recent months.