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MARKET ANALYSIS

Since our last report, the bulls are attempting to reapply something other than sunscreen following a bit more "Sell in May" activity. For the two-day period the Naz''100 ( QQQQ) and "SPYder" ( SPY) are up .97% to 1.43% on mixed levels of participation that''s sure to pick up in the next couple of sessions.

For those investors looking for headline-induced reasons for Friday''s distribution, capping off the weekly period was all about appreciating a couple bear-sounding catalysts and solidifying them by day''s end. Dow component American Int''l Group ( AIG) and its wider-than-prepped loss was that session''s top story. Secondly, a fifth straight session of crude gushing higher but without the benefit of the energy complex ( XLE, OIH) managed to produce trader talk of pressure at the pump and negatively impact equities in the process.

On the other hand, Monday witnessed a price rebuttal as traders snapped up shares off a disappearance act of sorts. Following AIG''s tone-setting, bulls on Wall & Main were pleasantly awakened by a better-than-expected profit and all-around decent report from European banking giant HSBC ( HBC). Separately, following its 8% weekly gainer, bulls opted for some profit-taking in crude and the US Oil Fund ( USO). The 2% decliner helped ease pump chatter, aided by the US Dollar rallying to two month highs. Greenback strength is currently a positive influence for equities as traders become more confident of a floor in the currency as the Fed''s rate cut magic begins to filter through the economy.  

Market Snapshot

Figure 1: S&P500 ( SPY) Weekly

As anticipated last Thursday, some additional profit-taking did wind up taking hold of the major averages. The price and time extension may have also been sufficient for traders to participate with fresh bullish delta positions, which obviously did have a few traders doing just that to kick off the week.

In the process of Monday''s rally, the bulls recaptured "S&P500 1400!" but are still flirting slightly below "NASDAQ 2000!" and "Dow 13,000!" More important, the weekly rising wedge and removal of intermediate supports such as the 20-week bull phase and Super Bowl indicator continue to stress that more restraint than in days and weeks past is a good thing overall. Additionally, fresh evidence like the "Sell In May" tendency, an eight-week up cycle from the March lows and a slightly uncomfortable but non-stretched VIX make for a more neutral-minded outlook for this market observer.

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 NDX, SPX & DJ-30.
• Consensus survey.
• Five-day pullback signal confirmed Monday.
• Midweek expiration bias.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA "Death Cross"
• 20-week bull phase until late April.
• Sentimentrader.com Dumb $$ cross.
• VIX test of December lows.
• "Sell in May" market lore tendency.
• 8-week cycle off March lows.
• AAII Sentiment Survey.Distribution count one month @ four days for SPX.

GROWTH STOCK ANALYSIS

Research In Motion ( RIMM) is being removed from the bulls'' radar as its most recent handle incarnation carried shares more than 15% above where this corner was viewing similarly-shaped patterns. Genco ( GNK) is another Bulls Radar selection being removed for good behavior. Today''s highs are just shy of 15% from the 71.80 handle pivot. However, they''re certainly close enough for cautious traders to schnitzel a piece or where adjusting into a spread to reduce the directional exposure makes added sense and cents.

For this corner and entering Tuesday, a more mindful approach when applying bullish deltas translates into seeing how a position progresses the same day as the entry. While I''m not seeing convincing evidence that growth stocks and their associated triggers aren''t worth the effort, it has become more hit and miss the past several sessions. Some of that of course needs to be chalked up to the broader market, which was pulling back. However, due to fore-mentioned weekly and intermediate factors which have begun to weigh in favor of the bears or a more cautious approach, micro-managing and reducing directional risk remains a priority.

Finally, I''ve redesigned the tables below to reflect when stocks were first posted to the watchlists. The added feature will allow readers to better track this market observations and methods.  

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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