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MARKET ANALYSIS

Two days of more “Got yer BACk!” financial relief and one rather large change of heart on Thursday have the bulls in “Monback!” mode and the bears back in the driver’s seat. For the three-day period, the Naz’100 (QQQQ) and “SPYder” (SPY) are off a rather tame .20% to .43% on closing data that’s a far cry from making sense and “cents” of it all.

It’s been nothing less than a very mixed and heavy dose of information that bulls and bears have had to digest during the past three days. For two-thirds of the equation, the former managed to keep the spirit machine alive and well by accentuating the positive and playing down the negative.

Positive catalysts such as “bte” and well-received reports (WHR, T, ISRG, CAT, DD, UPS and WLP) played a key role in jockeying prices and sentiment ever-higher. Elsewhere, imminent passage of easy credit for F & F (FRE and FNM) helped drive those stocks and other financials (XLF) to levels likely thought impossible several sessions back. Continued pressure on crude to one and one-half month lows on diminished storm worries and too many bulls caught flat-footed also aided in the bulls further recovery efforts.

At the same time, increasingly buoyant sentiment on Tuesday and Wednesday was able to shake off disappointments (WB, AXP and AAPL) or look past results that did punish specific names (SNDK, VOD, COST, CHRW and BA). Ironically enough, by Thursday, a classic “Let’s Party Like It’s 1999!” tech-driven blast from the past, was the final straw outside the involved “bte” and well-appreciated names of Intuitive Surgical Qualcomm (QCOM), Amazon (AMZN) and Baidu (BIDU). In virtually every other nook and cranny of the market, schnitzeling became a session-long preoccupation for investors.

Excuses behind the hard-hitting percentage decliners were plentiful enough, but far from a one-way street. Investors received or welcomed a double whammy in housing as pitiful results from Ryland (RYL) were treated as such, while existing home sales missed views and hit ten year lows. Weekly claims came in higher than expected. Poor results and investor backlash in names like Ford (F) and downgrades of Dow components McDonalds (MCD) and AT&T (T) didn’t help.

Market Snapshot

Figure 1: S&P500 (SPY) Weekly

The inevitable bout of profit-taking that really needed no excuses, came knocking on Thursday. Bottom-line and headline propaganda tossed to the side, after a sizable rally sentiment got a bit too cozy and investors were once more, their own worst enemies.

Some bulls can rejoice in the fact the percentage decliner unfolded on lighter volume. Better yet though, Thursday didn’t have to be a messy or plain ol’ hopeful affair. For those on guard after a very generous rally, the VIX Stretch once more presaged the action with a 17% drop below its 10-Day MA in Wednesday’s session. With a closing figure of 21.31% and stretch of just under 15%, the writing was on the wall and in front of today’s closing headlines wailing of what motivated traders into submission.

Entering Friday’s session, the classic FTD window of a signal being generated in between days four through seven is history. Late signals have however, been known to work. Along with recent extremes in bearish sentiment that rivaled the grief felt at the March lows, I’ll be monitoring for pullback entries as one of three variations on the double bottom pattern emerge in the SPY. Right now, rattling bulls with a move to the 123.50 – 124.50 will be watched as an area worthy of lower risk / higher reward entries.

The above price zone incorporates a 50% to 62% pullback. One caveat is that as a “higher low” support area, traders need to realize an equal low double bottom at 120 and “lower low” variation would be painful to go through for bulls too attached to any higher-up i.e. higher low, bargain-hunting possibilities. As such, be careful what you wish for and keep the powder dry in a still-confirmed bear market.

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

• Mid July sentiment / extremes worthy of intermediate low.
• Day 8 and 9 of rally attempt count with “FTD” typically days 4 – 7.

Bearish Technicals

• Bear Market.
• Scattered growth with few bullish and stabile trends.

GROWTH STOCK ANALYSIS

Doink! Earnings can be a tricky business for both directional and non-directional traders. Intuitive Surgical (ISRG) and Amazon (AMZN), two of three issues posted as Bear Radar components are thought a testament to that type of reality. It’s why upcoming reports are part of the details below. Ultimately though, the decision to gamble on a known catalyst in a limited risk capacity or otherwise is deserved of extra consideration and always the decision of the trader pressing the buy, sell or spread buttons.  

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

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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