MARKET ANALYSIS

Since our last report, a few bearish financial anchors have been hoisted by the bulls, with a market-based follow-through day the net result. For the four-day period, the

“SPYder” (SPY) and Naz’100 (QQQQ) are up 5.00% to 7.47% on heavier support for the market’s nascent “confirmed rally.”

It hasn’t been quite as easy as the end-of-day pundits and closing numbers suggest. Nonetheless, the bulls have once more reclaimed the intermediate edge through a combination of severe technical and psychological testing, some decent props for support efforts, as well as the ability to climb slightly lowered walls of worry. For the period, highlights for the bulls include:

• Strong reaction and reports from “BD’s” Lehman, (LEH), Goldie (GS) and Morgan Stanley (MS).
• .75% fed funds cut with “act as necessary” language keeps bulls cheering.
• OFHEO cap easing for Fannie and Freddie.
• Continued Fed agency liquidity supports / allowances throughout period to add liquidity to credit markets.
• Thursday’s triple play for Nike (NKE), General Electric (GE) and Intel (INTC) helps vault indices skyward and Dow to follow-through day status.JP Morgan’s (JPM) upped ante to $10 a share for Bear Stearns (BSC).
• Fitch maintains financial and debt ratings on bond insurer MBIA (MBIA).Tiffany (TIF) and Walgreen’s (WAG) earnings. Stronger “bottoming” type numbers from existing home sales and solid breakout response in ETF (XHB).

Market Snapshot

Figure 1: NASDAQ 100 (QQQQ) Daily

The proverbial “They” certainly didn’t make it easy over the last few days. First, a strong gap higher last Tuesday was immediately followed by a mixed volume bearish engulfing candle lower on Wednesday. Then a potentially questioned, “is it for real” bullish expiration and index rebalancing act last Thursday made for a “Good Friday.” But was anyone really buying it? It seems they were based on Monday’s bullish gap extension. Additionally, with a market-based follow-through day in place courtesy of the Dow Industrials (DIA), it also appears growth traders can begin the process of locating bullish opportunities. 

Entering Tuesday’s session, lighter volume totals to start the week and short-term overbought conditions do suggest the market’s newly-branded FTD is vulnerable to profit-taking efforts. Once that inevitability does avail itself, intermediate bulls will be looking to gauge the health of the market through constructive index action relative to the gains produced over the last two sessions. Secondly and as important, price gains out of weekly breakouts and / or how growth stocks react near their proper buy points will be monitored closely for signs of increased consistency. Those technical “tells” had been somewhat suspect during the market’s previous “confirmed rally” set back in mid February.

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

• FTD in place.
• Long-term indicators unilaterally point higher per sentimentrader.com with Smart / Dumb $$ indicator at historic extreme.
• Ultra-high volatility / whipsaws typically associated with bottoms.
• 20-week bull phase until late April.
• Super Bowl indicator: NFC win = +13% yearly gainer on robust 86% historical tendency.
• Jan / Feb +15 / 21 sessions with 1% or greater range in SPX historically points at gainers across all time frames, with 89% track record of yearly 16% gainer.
• AAII, Investors Intelligence, Market Vane & Consensus readings.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”
• Beaucoup W4 sell set ups vs W4 buys per PS Elliott.
• Short-term price extensions and indicators enter overbought stage.

GROWTH STOCK ANALYSIS

Despite a generous price extension for the period and a follow-through day, extreme price volatility last Wednesday was sufficient in dismissing early leadership in Azz Inc (AZZ), while nearly de-railing Burlington Northern (BNI). Other component issues of the Bulls Radar remain mostly in position / consolidating when viewing the weekly chart.

From the Non Directional Radar, Apple (AAPL) is attempting a bullish resolution from a Bollinger Squeeze situation. With Monday’s closing breakout definitively above the 50-day moving average on higher volume, two-month base consolidation highs are the next significant hurdle before a test of the 200-day moving average near 150 comes into play. 

And finally, from the Bears Radar, Procter & Gamble (PG) has cleaned up its act with an upside Bollinger breakout through all kinds of sometimes meaningful moving averages. As such, the bear goggles have been removed. Conversely, Waters (WAT) has been deluged by bears to the tune of nearly 7% on a closing basis for the past four days and upwards of 8% at Monday’s lows. With a high volume doji now carved out slightly below its year-to-date lows, attention to reeling in any potential open profits looks like a good course of action, while still respecting the idea of there always being a bear market somewhere nearby.

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 “Coiled Springs”

Table 2: Basing Watch list

The Bears

Table 3: Bear Watch list


Chris Tyler
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. 

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