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Wednesday was one of those days where the bulls tried to put on a good game face despite not having the best offensive gear for the occasion. By the second half, though, yet another upside romp for oil and new SEC disclosure requirements for investment banks forced investors to relinquish in full, accumulation gains from the day prior, as well as the coveted “Dow 13,000!” and “S&P500 1400!” psychological markers.

What’s next? I’m not generally a big believer in one day making a trend, but Wednesday’s distributive activity back below upper supports was alarming. Additionally, evidence of late has been building in favor of the bears. Some concerns that have begun to gnaw at this cautious bull are:

• Six month low in the VIX.
• A lower right stage exit for the 20-week bull phase which began last December.
• Dumb money crossover at sentimentrader.com,
• “Sell in May” market lore based on historical tendencies.
• 8-week cycle off lows.

Another factor, which appeared as a bearish epiphany early this morning, was a more detailed look at the market’s rally since the March lows. What I found or realized was the tightening series of contractions, both time and price, before each higher price thrust in the broader market. Below is a weekly chart visual of that concern. I say “concern”, because it suddenly feels as if once-healthy market and consistent tendencies have crossed the line into a place where the bulls are guilty of being a bit too smug with their intermediate uptrend.

Figure 1: S&P500 (SPY) Weekly Rising Wedge

When looking above, the fore-mentioned concern looks to have taken the shape of a rising wedge pattern and one which has failed at the 50% retracement level. Am I being a grizzly ol’ bear and setting myself up to look silly as investors likely pull one of their “bargain-hunting” sprees Thursday? Maybe. More important though, with the body of evidence shifting towards less bullish conditions, I’m willing to forego participating in any or most potential headline efforts of cheerful behavior until harder corrective testing is secured. For now, I’d estimate that could translate into needing another two percentage points at minimum and / or three to five sessions of consolidation before I’d be seeing any red as the color of money.

Figure 2: Fair Isaac (FIC) Daily

With the bear goggles strapped on, well at least temporarily, I’d like to take a look at one name which looks poised for lower prices. Fair Isaac (FIC), a financial software services company recently announced its earnings. The slight profit beat was dismissed by investors in favor of light revenues and the company’s reduced outlook for its second half, which has earnings pegged at 74 cents versus Street views of 1.03 per share.

Technically and shown above, the reaction triggered an out-the-gate W4 sell signal per our sometimes trading buddy PS Elliott. More recent, the last six sessions has found the stock coiled within its post-earnings wide range bearish candle. The overall pattern from its March lows is reminiscent of an inverse cup with handle. With an EPS Rating of 56, RS of 19 and weak technicals for its industry peer group, many growth traders might see the name as a likely candidate for bearish positioning.

In light of the overall market scoring fresh highs, the overall picture for FIC appears all the more ominous. Speaking of which, Profit Source’s EW4 is forecasting a rather bearish price slide for FIC over the next few weeks. With a midpoint target of 15.50 representing a projected move in excess of 30% versus an eyeballed but realistic risk assumption of 7% to 11%, I’d say the odds look more than fair for any would be bears in FIC.     


Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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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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