You’ll Need Beer Goggles for These Trannies

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The importance of perspective when analyzing charts cannot be emphasized enough. In particular, when dealing with an historically accurate broad market gauge, such as the transportation stocks, it is crucial to not jump to conclusions without first considering the price action over multiple timeframes. As an example, last year around this time the elder statesmen of Dow Theory, Richard Russell, was literally telling people to “sell everything,” and he was calling for the end of America as we knew it. In large part, he based his analysis on what he figured was a massive breakdown in the trannie stocks.

However, as I detailed every single day in my market wrap ups all of last summer (feel free to look in the archives), the trannies never so much as took out their February 2010 lows last summer, despite the S&P 500 doing so. Hence, despite people paying him handsomely to hear Old Man Russell’s exhortations, it was actually your good friend “Chess” that was right on the money, giving you all of this information for free right here on iBankCoin, day in day out.

Over the past several months, the daily chart of the trannies has been quite sloppy, indeed. It would have been so easy to turn bearish on the market and play for a big breakdown, once again, based on this Dow Theory extrapolation. Instead, zooming out to the weekly chart, we can see that the bullish pattern is still intact. It truly is amazing to see how sloppy a daily chart can be, while the weekly remains simultaneously pristine. Until we really see any type of damage on the weekly, the trannies command your respect, as they took out their April 4th, 52-week highs today.

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Bill Ackman and other big money ballers are sitting pretty right now, given the look of their big JCP holding.

A few other retail names looking great this afternoon are: CAB JWN SHLD SKS

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Roughly five trading sessions after an initial negative reaction to the Standard & Poor’s downgrade of the U.S. debt outlook, the broad market is printing fresh 52-week highs. Breakout plays are working well, as the bears are once again at the epicenter of seemingly every practice joke that Mr. Market is playing. As you can see on the daily chart of the Nasdaq Composite Index above, so long as the bulls can hold this key 2800 level breakout, we are looking at an inverted head and shoulders patten that yields a measured move upside price objective of roughly 3000. Note that the S&P 500 also has a similar setup with a measured move target of roughly 1400.

The Nasdaq also clearly illustrates the huge gap higher that we saw last week off of the lower end of the range. Recall that “common gaps” get filled, whereas breakaway or runaway gaps do not. Again, so long as the bulls hold 2800 here, that gap will prove to be a breakaway, which of course would very bullish.

While all eyes will be on Bernanke tomorrow, I will continue to focus not just on the levels outlined above, but also on the best individual stocks that are working in an increasingly evident stock picker’s market.

[youtube:http://www.youtube.com/watch?v=22R5tPvp7aE 550 412]

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After starting April off with a nice buyout of SRX, 12631 members are celebrating another healthy premium buyout in SMOD this morning.

Timestamped message I sent inside 12631 to members yesterday….

“New Long: $SMOD @ $8.29 Stop Loss: Below $7.60 Full position. Also sold out of $UA in front of earnings tomorrow, in full @ $78.08 for a small gain. 12:08:36pm EST on Mon, Apr 25, 2011

Today’s news.

Congrats to 12631 members!

Also, a big hat tip to my friend @OptionRadar who has been all over SMOD.

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One of the hallmarks of the 2003-2007 bull market was seeing some IPO’s initially struggle during their first several months after going public, before eventually exploding higher for massive gains. Both FSLR and GOOG (there were a few others) come to mind as examples of IPO’s during that bull run who saw a brief consolidation after going public, lulling hot money traders to sleep. As we know, though, those firms went on to see exponential gains over the next few years. Now, far be it from me to declare that all recent IPO’s will be ten-baggers in the coming years. However, it is worth nothing that a slew of recent IPO’s have now had several months to act like ho’s, playing mind games with traders lacking patience.

The following stocks (with charts below) have all IPO’d within the past few months, and should be monitored for stealth breakouts. DANG and YOKU are on many hot money trader’s screens as it is, but do not neglect the others.

DANG HHC NTSP SODA VRA YOKU

Disclosure: Long NTSP at the time of this writing.

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