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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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You can see below on the daily chart of the XRT, ETF for the retail sector, that price is consolidating in a comparatively tight manner this time around, as opposed to the prior several months with those loose and sloppy patterns. If the XRT can negotiate $51 well, I like the following three individual retail stocks as long trading ideas. See my notes on their respective chart below.

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To be clear, it is often not necessarily what the market is doing, but how it is doing. Going sideways, or “chop,” can just as easily have bearish undertones if there are wild price swings and high volatility as it can be bullish if the action is muted. So, I am not just looking for the market and individual stocks to merely chop around in order for me to get bullish, but rather for them to tighten up and quiet down considerably.

A good example of the type of action I am looking for is in home healthcare equipment maker LNCR. Note the long base on the daily chart below, which could just as easily be a consolidation before another leg lower as it could be a bottom. So, what to look for? Well, loose and sloppy patterns denote loud, violent disagreement amongst market players, which often resolves in a bearish manner. On the other hand, if price compresses to the point where it is a stalemate, you should be on watch for a bullish breakout as bears have lost their mojo.

On the chart below, note that the “right side” of the base has tightened up as volume tapered off as well. The base has a symmetrical look to it now, and I am more inclined to stalk a bullish upside move than to be prepared for another major leg lower. If the market can somewhat replicate a plethora of charts like the one below, then the bulls would be in a good position for a major upside breakout.

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Earlier on Sunday, iBankCoin Financial News reported that Kinder Morgan Energy Partners paid a sizable premium to buy El Paso Corporation in a massive $38 Billion deal. Over the past several months, I noted here and here of the strong relative technical performance of the oil and gas pipeline plays. When you combine the persistent underlying bid to the group as a whole, on top of the now legitimate consolidation taking place in a major way, it is hard not to look at other viable pipeline plays. You are talking about huge dividend yields and a lower beta way to play energy than watching ATPG swing 50% every few days.

Below, note how orderly the weekly charts are, as the pipelines plays have worked through a multi-month consolidation, particularly in comparison to the huge volatility taking place in the broad market since the summer. If you are looking for pin action off the El Paso news as the sharks circle the pipeline plays, then I am most impressed with BPL MMP SXL (the latter after a consolidation).

Members of The PPT and 12631 click here to view the entire group sorted by PPT Hybrid Score.

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Direct Vimeo Link Click Here

 

Tickers Mentioned: $CIEN $CRNT $CSCO $EGHT $JNPR $QQQ $SONS $SPY $TLAB

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To be able to marry impressive growth with strong buy volume and price action in stocks is a nice, convenient bonus for swing traders. Inside The PPT, I created a screen called, “Bull Market Beasts,” where I monitor stocks with extraordinary fundamentals of “growth firms,” with respect to profit margin, return on equity, as well as quarterly earnings and revenue growth. Member of The PPT and 12631 can click here to view and save that screen.

Looking over the screen after this past week, I see several of the most impressive growing firms that happened to have seen strong buying volume during the recent rally. What that tells me is that buyers of size see real value at these levels. Also note that a common gripe with the rally over rough the past two weeks has been the overall lack of broad market volume. To my eye, this reinforces the idea that the big money is selective in where it is going, but you had better pay attention to which names are getting the action. If this is, in fact, a major market bottom, then you can be sure traders will soon be scrambling to find the best of the best for the next leg higher, and I guarantee you will see many new faces that are leading the charge from last year’s rally off the bottom.

A few that jump off the current list: BSFT CPE KLAC. By now, you probably know my stance on the market is that I will not become aggressively long until we consolidate and/or make a higher low as charts across the board firm up. That logic also applies to these names, in that I am looking for a respite before getting involved. The market might cooperate with that scenario or it might keep going vertical. I have no control over that. What I do have control over is where I pick quality entry points to deploy capital.

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