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Tuesday’s market action certainly wasn’t a uniform affair. Nonetheless, a closing price reversal to the upside after a shaky start and a continued hold of last week’s pivot lows does bode well for the establishment of an intermediate low. Now all that many growth-oriented bulls need are one of those things called a follow-through day.

One quickly-leading (relative strength) sector of late that could help with securing one the fore-mentioned and high-powered technical event is Genzyme (GENZ). The biotech (BBH) giant sports growth-worthy stats and enjoys some market influence as both a sector component and member of the NASDAQ100.

Technically the situation looks decent overall. Both the weekly and monthly charts show an existing W4 EBOT having triggered in the past month. At the same time, the year-to-date picture shows a nicely-developed weekly double-bottom or possibly a cup-shaped base. Those two patterns also have a handle developing, which is shown below in Figure 1.

At day number five of construction, today’s closing and high-volume doji decision looks to represent a critical spot at which we might expect either the bulls or bears to capitulate. The problem of course, whether one is bearish or bullish, is the price action following tomorrow morning’s release could likely be well-removed from tonight’s prices. For those that were willing to assume earnings risk, handling Genzyme was made a bit less difficult with rather fair pricing in front of the report.

Figure 1: Genzyme (GENZ) Weekly

Implieds on the session picked up slightly in the front two months, but aren’t exactly screaming of an earnings rush or bid that’s prohibitive to an outright purchase. It’s true that buying shorter-term directional premium isn’t for everyone and certainly has its limitations. However, as the pricing translates into an attainable earnings-related 3% to 5% gapper needed for a double in the OTMs, buyers of that type premium are thought to maintain an approachable spec given the overall circumstances.

Figure 2: Genzyme Most Active

Checking the board and most active on the session were the ATM August 80 calls. Nearly 3,100 traded versus an open interest of 4,831. With a close of 2.35 on implieds of 32.50%, an outright buyer will need to see a stock move of about 5.50% for a double. That’s without factoring in a likely several points of “vol crush” into the mid 20’s. However, a favorable move of that magnitude would result in shares near 83.65 and the calls holding intrinsic value of 3.65 for a gainer of more than 50%. All told, with an estimated 1% volatility risk should shares simply sit to a maximum 3% of stock risk in the advent of a miscalculated move in the underlying: I like the odds for those bullishly-positioned fast money types in today’s less-mad, but still volatile bear market.

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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