Change text size

• Email This Article
• Print This Article
• Subscribe

MARKET ANALYSIS

Seasonal tendencies ring true as bulls celebrate the New Year with fresh intermediate highs. Kicking off 2010, the SP-500 (SPY) is up 1.60% on heavier volume and plenty of reasons to be more optimistic than simply "ho-ho-hopeful."

Key highlights for increased "Buy, Buy, Buy!" action above recent range highs:

• Oversold technical platform and seasonal "new" and sidelined monies bias.
• Better-than-expected China, European and US manufacturing data buoys tied-at-hip and green shoots sensitive commodity complex (GLD, SLX, KOL, USO and GDX).
• Influential broker upgrades for Morgan (MS, XLF), Intel (INTC, SMH) and refiners (VLO, FTO).
• Merger Monday influence as Novartis (NVS) looks to buy up 77% remainder of Alcon (ACL) for $39.0B.

Key highlights for "sell-e-brating" into the celebration:

• A contrarian-driven lack of compelling reasons to schnitzel a little something.

Market Snapshot


Figure 1: S&P500 (SPY) Breakout

Since our last report two weeks ago, an expected test of the 50-SMA quickly materialized the very next session. From there, the SP-500 (SPY) reversed to dazzle bulls that same day with a nice hammer. Ensuing seasonally light trade saw the market hit fresh highs by a narrow margin, but close out 2009 on a less-than-cheerful higher volume, bearish engulfing candle. Then there was today.

Whether Monday's trifecta of pleasant global manufacturing data, fresh seasonal or sidelined monies or any other combination of reasons were behind 2010's solid-looking start, is up for debate. Technically though, the bulls are in the driver's seat with a heavier volume breakout of the existing loose lateral trading range into a fairly significant technical air pocket.

Is it a perfect situation for bulls? No. The most sensitive of short-term indicators are likely making some noise about a quickly overbought market and the VIX is near its pre-Lehman and benchmark 20% level. As for the latter concern, it might be remembered the VIX was quite comfortable below 20% for a four year stint from mid 2003 to mid 2007.

It would personally take a move below 17.50% in the VIX and a short-term trading extreme relative to the 10-SMA, before this cautious bull becomes increasingly concerned. And finally, in a world where profits and losses are measured by price alone, if the SPY turned tail and closed below 112, that would represent a second and equally good warning of a bull on a weak footing.

The following factors and anecdotal evidence might be considered relevant in determining a suitable, limited-risk strategy in the coming days and weeks ahead.

MARKET LAB

Bullish Technicals

• Weekly Inverse H & S breakout from October lows. "MM" of 117 - 123.
• November thru April strongest six months for equities historically.
• Uptrend breakout 1.04.10 into large technical air pocket.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl
• Mostly long-term overbought market conditions/weak internals.
• Q3 "Recession is over" data confirmation.

RADAR WATCH

Once again and in lieu of the market never sleeping despite this trader being away from his desk for some R&R, some house cleaning on the Bears Radar is required. Prior watchlist candidates Nucor (NUE), Sohu (SOHU) and Mr. Market (SPY) have all given various signs over the course of the past two weeks of misbehaving for those wishing to bear the negative delta.

On the Bulls Radar, software shop and NASDAQ 100 component Citrix (CTXS) is being added. The name was one of several companies pegged as a potential takeover target in Barron's a couple months back. More recently and technically speaking, CTXS has carved out a nice multi-week and larger monthly chart cup-with-handle pattern off multi-year highs.

RADAR SCREEN

The following optionable stocks look to have a combination of technicals and fundamentals that might warrant further investigation based on a trader's own methodology and risk acceptance. The list is not a recommendation and is intended for educational purposes only.

The Bulls

Table 1: Bull Watch list

Non-Directional

Table 2: Basing Watch list

The Bears

Table 3: Bear Watch list

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler's Forum

The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.

• Email This Article
• Print This Article
• Subscribe

Recent Articles by Chris Tyler, Optionetics.com

• July 30, 2010
  Midday Action: July 30
• July 30, 2010
  Hot Shots, July 30: Straddling a Breakout Performance from Within
• July 29, 2010
  Midday Action: July 29
• July 28, 2010
  Growth Stock Swing Option: July 28, 2010
• July 28, 2010
  Midday Action: July 28