MARKET ANALYSIS

Clockwork raiding of strikes thought all but dead for the bulls and a pause in the action are shaping up as a “goog” Friday for the market’s confirmed rally. For the three day period the “SPYder” (SPY) and the Naz’100 (QQQQ) are up 2.70% to 3.10% on plain and simple accumulation.

“Plain and simple accumulation?” Well not really, if one so chooses. First, traders could sort, sift and sniff through loads of mixed reports and sometimes mixed reactions, in attempting to realize how the bulls regained the home field advantage.

Secondly, with options expiration almost notorious for its consistency in producing a good-sized thrust day, either up or down, it’s with little doubt that those mixed reports which added up to an outsized Wednesday jump for joy response, had the help of more than a few set-to-expire and now, less-happy bears out there.

Should it matter? I used to appreciate a deeper meaning into the “why’s and how’s” behind such action. But, as I’ve written in days past, I never found it to be a venture where profiteering was the end result. That being said, we could stay up countless hours figuring out how exploding derivatives interest and newly-minted ETFs and even inverse and double beta ETFs need to be qualified. However, “K.I.S.S.” and accepting the charting tea leaves for signs of “Buy, Buy, Buy!” and “Sell, Sell, Sell!” and without worrying over the little things, add Merrill’s (MER) latest outsized loss to that list, seems a better way to approach the market.

Market Snapshot

Figure 1: NASDAQ 100 (QQQQ) Daily

That certainly wasn’t nice. I began my last report with those words as the detailing of a difficult-to-handle light volume price snuffing for the bulls was in order. That being said, the current ode to sympathy, well kind of, is to those of the Ursa Major or bearish camp.

One Hammer-style Doji, a bullish continuation gap and thrust followed by a decision candle in Thursday’s session, appear set to find an upside resolution Friday morning. With a staggering After Hours jump in Google (GOOG), not built into the options pricing, that well-received report in of itself should be enough to keep futures propped up nicely.

Sans Intuitive Surgical (ISRG) at this point, growth stocks are continuing to show relative strength during the market’s “Ohhhs and aggghhhs!” Hence, the bulls have further evidence to having reclaimed the upper hand in the market’s confirmed rally. The downside of an opening gap bid in the market is that for the non-positioned, a more cautious approach to any fresh longs needs to be considered. First, short-term indicators under such circumstances will likely be overbought. Second, a test of 20% in the VIX should find the bulls turning tail, at least temporarily. Third, the market is saying farewell to the 20-week bull cycle, although it wasn’t of much help anyways. And lastly, Expiration Friday’s are generally accepted as consolidation days and not the best time to expect additional broad-based follow-through.   

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.
• Series of higher highs and higher lows in leading / growth-heavy NASDAQ.
• 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”
• VIX test of key 20%.
• Shift by PS Elliott in W4 Sells swamping W4 Buys.
• PS Elliott W4 Sell in NASDAQ 100.
• Lower highs in S&P500 spells bear market to some technicians.
• 20-week bull phase until late April.
• Friday gap likely sees short-term overbought readings.

GROWTH STOCK ANALYSIS

Continued bullish praise for Burlington (BNI), Monsanto (MON) and Koppers (KOP) in our last report turned out to be well-placed. Each of those stocks from the Bulls Radar showed nice gains for the period, particularly Aggie giant Monsanto, out of its weekly double bottom and handle pattern. While decent results are in hand, none of those names are truly extended from their bases and / or pivots as to dismiss them just yet. Trend traders will likely agree. 

On the other hand, Intuitive Surgical (ISRG) is being removed. After retesting consolidation highs, the stock failed to move more than 7% above its $335 handle breakout on three occasions. With a poor response to its earnings report this evening, shares are off handily and fast approaching an 8% “manageable loss” threshold. In its place and still handling the bull market quite well, is Homex (HXM), which was featured in this week’s HOTSHOTs. Research In Motion (RIMM), which recently posted strong results, is ranked in the IBD 100 and sports a weekly cup with handle pattern has also been added.

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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