The biotechnology sector began 2012 with an incredible price thrust supported by obvious heavy buying volume. Although they have cooled off at various times as the market has corrected, the IBB sector ETF remains not far from all-time highs. Usually, when a sector starts the year on a tear and holds most of those gains during the inevitable peaks and valleys of the market, you see a secondary move later in the year.

A few weeks back, one of the few long setups I posted was Seattle Genetics, a biotech taking its city’s namesake. While Seattle no longer has the NBA’s Sonics, who have departed for Oklahoma City and are now headed to play for a world championship, they sure appear to have a champ in SGEN. If SGEN can behave this way in a correction, think about how it, and many other similar-looking biotechs, can act when we see another uptrend. The weekly chart below notes the massive, high volume breakout this week. Unlike many damaged stocks merely bouncing back to logical resistance areas, the biotechs continue to display strength.

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I wrote about Target as a long-term idea last February in this post, looking for a major breakout. On the back of Wal-Mart stock’s recent success, which I was looking for last October, I believe Target is in a good position to surprise those calling for the death of major, big-box retailers. When I first wrote about Target, it was trading at $55. Even though it is slightly higher now, the gist of the chart is that it is still working through a massive symmetrical triangle, as you can see below. I want to see the stock clear $59 with an uptick in buying volume to start to play for a big, long-term breakout. It might very well take a while to materialize given the current corrective nature of the market, but then again this is a long-term idea. If the stock loses $52, I would call the whole thesis into question.

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As I discussed last week, I have no problem watching a few pitches float by when the market is in a correction and the temptation is to play for the big bottom. There are many ways to consistently profit in the stock market as a trader, but mixing and matching styles (e.g., turning a momentum trade into a mean-reversion play when it goes against you, waiting for it to come back) out of convenience is usually one of the easiest ways to blow out your account. I know what I look for, and it has by and large served me well over the years. Just as being a stubborn bull was the goal in the obnoxiously overbought market during the first quarter of this year, erring on the side of caution via an outsized cash position has kept me out of trouble since April, all the while getting a few huge wins in AEO DFS and MNST along the way inside the 12631 Trading Service.

I am focused right now on keeping a pristine watchlist, with stocks that may be firming up here and ready to lead us on the next sustained leg higher, whenever it may come. As an example, while the chart for the XRT, ETF for the retail sector, is quite sloppy on many accounts, there are a few highly impressive individual retail stocks to observe. Quite a bit of attention has been given to athletic apparel and footwear firm Under Armour. Indeed, UA has been impressive during this correction, holding up very well and pushing up towards the highs over the past week.

In addition, note two stocks in the same broad industry–Foot Locker and Finish Line. Just as with Under Armour, Foot Locker is actually too extended for me in the short-term for a proper swing trading entry point. As a pin action play, though, I am looking at Finish Line if it can squeeze past $23 tomorrow in a strong overall market.

In sum, I am prepared but will not force the action. The overall technical picture has considerable room for improvement, which means I am going to patiently leg back in if the bulls can build on Tuesday’s rally.

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The oversold rally might need a bit more time in the oven, judging by this morning’s price action. After yesterday’s furious reversal higher, the bulls had every opportunity to gap us higher for a sharp squeeze. Thus far, though, shorts are not in too much pain given the context of the correction for most of May relative to the recent bounce.

As I noted last evening, I have a few longs on my watchlist as bounce ideas, but I do not yet see a healthy, trending environment like we saw in the first quarter of thus year. Thus, I am content to sit in cash until I see a more energetic bounce higher and some of the setups trigger. I am also still looking at the low-1340’s-1358 area as a logical level where we should target for a bounce. The long holiday weekend approaching lends itself to a drift higher, if only for a few days.

The hot action is few and far between today, save ROSG and GENE. In that same arena, keep an eye on GHDX and MYGN for pin action plays. Other than that, I will be looking to see if the bulls can put together a stronger effort this afternoon.

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The bull thesis rests on last Friday’s low being a good one, lending itself to a squeeze higher into the traditional flag-waving Memorial Day holiday weekend. I want to be ready to pounce on a few stocks that have weathered this correction extraordinarily well, such as the ones below with my chart analysis. The idea is to be prepared if the bulls follow-through to the upside, but not force the issue if we see continued churn. If the latter happens, continuing to play defense and sit in cash is the correct strategy.

Although the stocks below have shown good relative strength, it is hard to “set ’em and forget ’em” as long-term swings in your portfolio at this point given the technical damage that the market has recently suffered. However, it is worth being prepared and in good position to confidently strike them with a few quick trades to participate on the long side if we see the market bounce into the weekend.

12631 members should check the main blog inside our service for even more ideas.

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A few weeks back I detailed a possible long PZZA/short DPZ pair trade in the pizza space. The Dominos’ weekly chart below shows a rising channel break. Along with the broad market, it has bounced recently. I would look at it as a short back below $30 in a weakening tape. Papa Johns is the long idea, and looks to have consolidated its initial pop very well, benignly pulling sideways to meet its rising 20 day movie average. It may very well be ready to go higher, even in a range-bound market.

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