NOTE: chessNwine’s Weekly Strategy Session has been published and sent out to members this week. I am confident that you will find this week’s version to be of tremendous value in your weekly preparations for the market. It is never too late to sign up at a very reasonable price, so please click here for more details about subscribing or even making a one-time purchase (the subscription plans offer much better value over time). As a reminder, members of 12631 receive the Weekly Strategy Session at no additional cost, as it is included in their membership.

Many regional airlines are popping up with some enticing technical setups here. We all know the major carriers like DAL and LCC have had a strong run of late, but falling asleep on the regionals might be a missed opportunity. The bears have been suffering motion sickness up in the air lately.

Members of 12631 and The PPT can click here for the full list of regionals, sorted by Friday’s daily hybrid moves.

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While the major averages are indeed short-term overheated, they could easily cool off by grinding sideways even as many quality individual setups underneath the surface continue to work well. As a result, I like the following short squeeze plays on any further strength.

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The first chart, below, of the monthly timeframe indicates that Advanced Micro Devices has fallen in a straight line since March of this year down to its last line of defense support dating back over twenty years. The heavily-shorted semiconductor has been arguably the worst performing billion dollar-plus market cap stock in a lousy sector this year. Most traders would understandably and reasonably shy away from entertaining a long position in a stock which has been a bottomless pit for at least a few quarters now, complete with major micro issues (not to mention the macro ones that have plagued the semis).

And yet, we can state several things with confidence about AMD:

1) The stock is down to very depressed levels, which likely has priced in everything horrendous except the firm going out of business.

2) The stock came under very heavy selling volume in September and especially October. When you consider that happened after a     multi-month decline, it smacks of capitulation.

3) The stock remains heavily-shorted and, even if it is eventually going out of business, can still feature violent short squeezes rallies higher along the way.

Finally, and perhaps of most substance to traders, the daily chart (second chart, below) for AMD is sporting a clear bullish RSI divergence (top pane below, the RSI is simply a relative strength indicator), as well as a bullish MACD cross (bottom pane), while price had made new lows since late-October.

The key to this type of trade is having a clear exit strategy. You are talking about a badly damaged stock that could easily head lower yet. Hence, a strict stop-loss discipline–Not much below $1.80, if that–is suggested. The upside potential reward is a violent short squeeze that sees the rubber band snapping back in the other direction.

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On Tuesday, I bought a starter swing long position in Medifast at $30.46 inside 12631, with the intention of adding on strength. In addition to the daily chart acting very well throughout 2012, but especially outperforming the market in recent months, the weight management firm is headed into a very seasonally strong few months (more on this later).

More importantly, though, the monthly chart of Medifast reversals a noteworthy configuration. The “Bullish Rising Three Methods” is a rare but extremely bullish pattern. It is a “five stick pattern,” meaning it takes five separate candlesticks to meet the elements of the pattern. Within the context of a prior uptrend on a given timeframe (here, monthly), we see a long green (or white, depending on your charting software) candle which obviously illustrates further strong bullish momentum, followed by three small red (or black) candles denoting consolidation. At that point, the bulls arrive impressively once again for another long green candle to exceed the highs from the prior long green candle.

In essence, the pattern denotes a textbook bullish, tight consolidation that confirms higher without any nonsense, or too much backing and filling beyond the three small red candlesticks. The three small red candles should stay within the price range of the first long green candle. Now, in this case with the Medifast monthly chart, we can see the first red candle does make a new high. However, it would be more of a problem is the lows of the first green candle were breached, rather than the highs. Furthermore, the gist of the pattern here is that the third and final red candle does not come close to penetrating most of the upside progress made by bulls during the first long green candle.

As such, I am playing Medifast under the thesis that the breakout on the daily chart is just getting started, and all-time highs will be exceeded in the coming weeks. Although my stop-loss will trigger well before it happens, a weekly close below $25 casts doubt on that thesis and the whole pattern in general. That said, the Bullish Rising Three Methods is rare, powerful, and should be respected.

Also, courtesy of The PPT, note the seasonality statistics for Medifast as we head into December and, of course, New Year’s resolution-ridden January. While far from a sure thing (the stock was down several times in December and January as well), when the stock was up, it was up big-time in those months. These data points add more substance to the Bullish Rising Three Methods into December and January.

Seasonality

The following charts represent clear relative and absolute from stocks that are well off the radar compared to the usual collection of momentum stocks traders tend to watch. On further market strength, they are in excellent position for further gains.

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It is hard to find two more beautiful sights in a corrective market than the charts of AMCX and MSG, two stocks that I have referenced peridocially over the past year. Their continued strength is indeed impressive. On the daily timeframes below, note how price and volume are bullishly working in concert.

Also, chessNwine’s Weekly Strategy Session has been published and sent out to members this week. I am confident that you will find this week’s version to be of tremendous value in your weekly preparations for the market. It is never too late to sign up at a very reasonable price, so please click here for more details about subscribing or even making a one-time purchase (the subscription plans offer much better value over time).

As a reminder, members of 12631 receive the Weekly Strategy Session at no additional cost, as it is included in their membership.

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