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MARKET ANALYSIS

May begins with an about-face by investors that results in something other than selling. For the three-day period the Naz’100 (QQQQ) and the “SPYder” (SPY) are up 1.07% to 3.09% on some easier-to-handle truths than others.

What a “horribull” report! Wednesday’s Fed announcement did the unthinkable as policymakers dropped prior language “…downside risks to growth remain.” Actually, the culprit responsible for undoing Wednesday’s gains were, according to inside sources, investors collective concern that the Fed was being soft in its stance on inflation. Of course, cheerleading over “Dow 13,000!” and perhaps “end of month” locking in of gains, the first in five months, may have provided incentive. Go figure.

By Thursday, the new math of bargain-hunting, seeing an improvement in treasury spreads and embracing previously overshadowed bias shifts from Bernanke & Co. had the bulls on the run. Out-the-gate and continued spearheading by the Naz’100 also helped bulls make up their minds to the upside. Adobe (ADBE), Intel (INTC) and Research In Motion (RIMM) were three legitimate stories on the day which found more than just support from headline scribes.

Thursday’s broad-based retraction also had the financials (XLF) to thank. There weren’t any fresh catalysts, just an apparent appreciation for better conditions in the credit markets courtesy of the Fed. Also helping, for those traders that had been caught chirping about an inflation-tolerant Fed, swooning commodity prices (USO, GLD) linked to a firming US Dollar likely helped some investors’ fuel up their portfolios on visions of easing pressures elsewhere.

Market Snapshot

Figure 1: S&P500 (SPY) Daily

Immediately following Wednesday’s late day express train due south, investors got back on board the bull. Looking above at the S&P500 (SPY) and the much-ballyhooed 1400 (or 140 level) has been penetrated on a closing basis. For some reason the reclaiming of a century mark is supposed to make investors rest easier. I guess it works for those that also wait on Santa to arrive and bring financial treats each year.

For this corner, what works better is applying a blend of principles and trying to arrive at a non-biased conclusion as to which directional camp holds the edge. For the bulls, other than the headline-fantastic 1400 or “Dow 13,000!” schick, growth stocks continue to mostly cooperate and outperform the broader market. That’s a good sign. Secondly, long-standing resistance after nearly two weeks of romping on either side of 138.50 means the breakout has had time to digest prior gains.

The likely downside to the above analysis is overall bullish behavior has gained a following. While we’re not there yet, vocal levels of investor appreciation will become their own worst enemy. My guess is any aggressive one to two day moves towards the 200-Day MA would put the kibosh on the rally. Were that to occur, a break of the December lows in the VIX and a likely “VIX Stretch” would be signaling excessive bullishness. Until that day or a break below prior resistance band lows of 139.25 pokes the bulls (chart); remaining in sync with the broader market’s confirmed rally appears to be on the right side of the street with Wall & Main.   

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.
• Confirmed uptrends Nazzie, S&P500 and Dow.
• 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.
• Investors Intelligence, Consensus surveys.

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% first time in 2008.
• PS Elliott W4 Sells > W4 Buys.
• PS Elliott W4 Sell in NASDAQ 100.
• 20-week bull phase until late April.
• Sentimentrader.com Dumb $$ cross.
• VIX nearing testing situation of December lows. 17.50% equals short-term oversold stretch.

GROWTH STOCK ANALYSIS

Despite the market’s generosity of the past three days, recent Bulls Radar addition General Cable (BGC) has managed to slump lower following its slightly ill-received earnings report. Technically, enough damage has been done to this corner’s prior vision of a gap handle that BGC is being removed from the list.

Homex (HXM) hasn’t done the bulls any favors either, unless something along the lines of today’s “Bollinger Outlier 50” was snapped up. That’s short hand for a reversal technique which incorporates a piercing of the lower Bollinger and a 50-Day MA just outside the band. That’s the case in HMX and those same supports winded up marking an eight-day low in the stock. As for other traders in tune with handles and 8% stops, session lows of 59.01 remained above that level by 17 cents and the narrowest of margins.

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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