I just created a new screen inside The PPT  titled “chessNwine’s Finest Chessboard” that is as precise as any one I have concocted in terms of isolating strong breakout plays not yet extended past their daily moving averages. Members of The PPT and 12631 should click here to see the screen and save it (upper lefthand corner once inside The PPT to save this screen).

This screen should help you cut through all of the commotion in the market at any given moment and find the very best setups in real-time. As always, filter the results through human technical analysis and use proper risk management. You can always ask myself and @RaginCajun for suggestions inside the Pelican chat room in 12631.

Strong day of clear outperformance by us inside the 12631 Trading Service.

More on my video market recap after the bell…

Back when the heaily-shorted, high beta retail play BONT was trading at $9.65, I wrote the following premium blog post for 12631 members on August 29th of this year:

This is what you want to see on a bearish to bullish reversal over the course of many months. Look at retail play BONT‘s moving average on the left side of the zoomed-out daily chart below–Downsloping and indicative of the bear. However, the chart recently saw price curve back up along with those moving averages.

Beyond that, we have just witnessed a classic cup and handle bullish breakout on strong buying volume. BONT is a very heavily-shorted name with a low float, meaning it is prone to vicious short squeezes higher. However, you must be sure you are on the right side of the trade, or the bevy of shorts will be pressing you lower.

After this breakout, I would not chase the stock here. However, I would now be watching it very closely to look for a mild pullback and major higher low before turning back up as an entry.

Because I elected not to chase the breakout in BONT, I missed out on a massive move higher in a virtual straight line up to $14.99. At times, I will miss breakouts even when I identify the pattern–It is part of the game, and certainly part of any disciplined trader’s experience in the market. You have a certain zen about it.

That said, there may very well be a good secondary entry point coming up. The stock is down over 10% right now, and though that seems scary recall we are talking about a very high beta, shorted stock. The overall breakout remains clearly intact, the moving averages on the daily are rising and lined up properly, and the volume pattern is still in the bulls’ favor. Look at the looming test of the rising 20 day moving average to see if the stock can stabilize and prepare for another potential move higher continuing from this breakout.

Despite the selling today, shorts are still broadly on the wrong side of the BONT trade.

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Instead of obsessing over some quick counter-trend trades, I am letting this so-far healthy consolidation play out, still heavily long inside 12631 as I have been over the past several weeks. In hindsight, riding a sustained uptrend in the market seems like an easy task for swing traders–You just buy right and sit tight.

Of course, in real-time the challenge becomes trading with confidence without becoming so cocky and complacent that you recklessly disregard signs the market may be topping. Currently, the overwhelming technical evidence I see points to a continued trend higher, with rising daily chart moving averages on the senior indices coupled with a benign pullback this week. Today, the cyclicals are back outperforming again, with retail/discretionary stocks like DKS continuing to push higher.

As with most things in life, being relaxed and confident puts you in a position to have the best chance for success. There is no law that says you have to pile into a triple-levered short in the face of a strong market for a quick trade. In fact, it may not be anywhere as close to a sure thing as it seems.

Indeed, not over-thinking a resilient market is a great way to avoid unforced errors.

As I pointed out to 12631 members early yesterday morning, the biotechnology stocks seem to be resuming their role of leader throughout 2012. Inside The PPT (you must be a member of The PPT in order to join our 12631 service), we were ferreting out the very best technical setups in the sector. The 12631 method is to filter these results through the lens of human technical analysis and sound risk management principles in terms of your entry, should you choose take the trade.

Below is a screen shot of just some of today’s results. The PPT offers many useful tools to help streamline your preparation as a trader and offer a better chance of you finding an edge in the market.

There are a different types of “gurus” you might follow, including those who claim intimate knowledge of Wall Street firms and CEOs, hindsight traders who conveniently disappear when the tape goes against them, and those who push themselves to put in the work on a daily basis to determine whether the market offers and edge and where. We are hell-bent in both the Weekly Strategy Session and 12631 to be the latter types of traders. 

Here is a portion of last week’s Weekly Strategy Session well before many traders started shorting or turning cautious in front of the big, bad Fed announcement. There had been a clear technical trend in place, and that should have trumped any fear. 

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However, a sign of a healthy, sustained uptrend would be to see more and more of what we saw late last week, with high volume breakouts in the materials and financials, two sectors that had not done much in a while. The first chart below is the weekly timeframe for the XLB, ETF for the materials sector. Note the symmetrical triangle breakout attempt last week. Bulls now want to see price turn $36 into firm support to help cement the notion of a major breakout here.

The next chart is the daily timeframe for the XLF, ETF for the financials. Note that selling volume had dried up in recent weeks, and buyers soon came to take what had rightfully become theirs with sellers out of the way, in the form of a high volume breakout.

Long-time readers of mine will recall that during the uptrend of the first quarter of this year I termed this type of concept “lock and roll.” In this blog post, I noted that:

During uptrends and rallies, the hottest stocks will naturally become extended. At that point, we see the bulls’ true test of mettle, in the sense that either capital rotates out of equities as a whole (bearish), or instead rotates out of the extended names and down to stocks setting up behind the leaders (bullish). I refer to the latter, bullish scenario as “lock and roll,” since traders are locking in gains from the extended names, and rolling them back to stocks set up next in line. What the bulls want to see is that continuity between capital rolling back into other stocks as the leaders take a well-deserved rest.