Listen to Those Knocks at the Door

chessNwine Fri Oct 21, 2011 12:48am EST 1 Comment

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I have been discussing the idea that the retail and transportation sectors are notably knocking at the very top of their respective multi-month trading ranges, probing breakouts. The energy and materials stocks have charts that have potential to squeeze higher, although I suspect copper first needs to firm up in order for that to happen. Regarding stocks as a whole, in this type of a situation where the market seems as though it is essentially even money to break out or roll over, I try to isolate the few setups that fit my criteria for a quality setup. If the broad market permits them to breakout with energy, then I will become more of a believer. As you might imagine, if they are too lethargic or outright fail, then that is a signal for me to continue to stay largely defensive.

The three charts below meet the criteria for that litmus test. EXPO has seen strong buy volume to support its solid price action. GME has the potential to break above its consolidation above all moving averages, especially on the back of ATVI breaking out on strong volume on Thursday. Finally, I am currently long JOSB, and charted it earlier this week as one of the better-looking retail plays.

In sum, put your ego aside and let the market tell you where your focus should be. While quite a few stocks and sectors are knocking for a major breakout, exactly what kind of character is on the other side of the door remains to be seen.

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