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While I want to see a new group of growth names emerge as leaders of a fresh bull run in lieu of the defensive plays currently sprinting higher, it is tough to ignore the relative strength in the transportation sector. First things first–We have this holiday period to navigate before turning our attention to the more serious matter of 2012 and how the new year will progress.

The Dow Jones Transportation Average closed Thursday’s session marginally above the key 5,000 level, which I have been noting for a while now as an extremely important price. If the bulls can hold this move, then of course the obvious trannie plays like CP UNP UPS will seem inflows. Presently, the aforementioned stocks are technically well set up. Beyond them though, a shipper like Genco printed a hammer on Wednesday after a prior steep downtrend, and then followed it up with a solid bullish marubozu on Thursday to confirm. So, the presumption is a tradable move higher with a clear stop-loss reference point (below Thursday’s lows would work, and definitely below the hammer).

Moreover, rail-related name GBX enjoyed an impressive cup and handle breakout on Thursday. If you do not want to chase, consider a similar name in TRN, which also has a cup and handle setup. Trinity saw its breakout fail so far, but if the bulls give it another go I think it is a good long idea to consider.

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There is a real danger in this type of market environment for confirmation bias to overrun your trading discipline. As an example, we saw the transportation stocks outperform on Thursday, which many bulls would point to as a clear positive. At the same time, bears would argue that technology stocks lagged, and consumer discretionary was noticeably weak when compared to defensive sectors like healthcare and utilities. Seeing as the market has essentially flopped around sideways since crashing last summer, there really is “something for everyone” to interpret in their favor or bias, and yet there has been no major breakout nor breakdown that has held true.

Hence, I am focused on keeping things simple with this market and not being too convoluted in my approach. Over the past week or two, I have noted the potentially massive inverse head and shoulders bottoming formation in the IYR, ETF for the real estate sector. As you can see below, now looks to be as good an opportunity as the bulls will have to run this thing up to at least the neckline at $58. If it triggers through $55/$56, then great. If not, then it would not surprise me to just see more of the same type of trend less action indefinitely.

Also note plenty of REIT’s have similar attractive setups as well, basing just above their respective moving averages. To go with the analogy that I have been making on my video recaps recently, I view the stocks on my watchlist as ornaments on a Christmas tree, not to be taken down and played with unless I have two compelling reasons: 1) The individual setups actually trigger a breakout higher, and 2) The broad market cooperates with the idea of breakout plays working well for more than just a few hours or one trading session.

Members of The PPT and 12631 can click here for more potential long trading ideas in the real estate sector.

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In light of the Shanghai Composite continuing to pose a threatening breakdown from a massive descending triangle, it is hard not to think that the “Google of China” will follow suit. The weekly chart of Baidu shows a pretty clear head and shoulders pattern after a sharp, multi-year advance. Just as with Salesforce.com, the $100 level looks to be the key nut to crack for bears playing for a major breakdown. For now, Baidu remains a sloppy and vulnerable chart. If China and Chinese stocks are one in the same, BIDU looks to ripe for a short in the event the Shanghai breakdown is for real.

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We have been short CRM for a while now inside 12631, and today’s weakness is notable even with the broad market lower too. The weekly chart above shows that the stock was on the cusp of breaking down from a sloppy period of consolidation that I termed the “War Box” in this post a few weeks back. Since then, there was a sharp rally up to the mid-$120’s, making life not so easy for shorts. I had been stalking it for a while, but waited until that rally up to $126 where I initiated the short. When you factor in the loose and sloppy chart pattern and the heavy selling volume over the past few months, Salesforce.com remains one of those leaders since 2009 that is still vulnerable and, at the very least, is far from offering up a quality long setup.

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Tickers Mentioned: $AZPN $CCOI $CPRT $EQIX $GRMN $GTLS $LTC $TRGP $ULTA 

Direct Vimeo Link Click Here

 

 

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The persistent nature of overnight gaps and sensitivity of price action to news, rumors, and headlines has, heretofore, precluded me from putting on longer-term, conviction swing trades. That said, I see some technical signs that the market is currently improving, and I am staying open-minded and as nimble as ever. In doing research this weekend, the following weekly charts appear to represent the types of swing trades to which I can see myself making a longer-term commitment in an improving market, rather than just a series of quick one-night or one-week stands with decent daily charts, as has been the norm for months on end.

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