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MARKET ANALYSIS

Since our last report it’s been “up, up and kind of yanked away” as bulls are faced with the latest and not-so-greatest reports. For the three-day period, the “SPYder” (SPY) and “Cubes” (QQQQ) are still up 1.62% to 4.14% on bucking type conditions within a nascent bull.

To quote Austin Powers, Tuesday and Wednesday were all “$@#$@! and Giggles” for market bulls. A crop of mostly good reports found fresh investment dollars willing to listen. At the same time, disappointments such as Freddie Mac (FRE) and it’s 80% dividend slash and $821M loss were largely shaken off by investors focused on FTD’s and highly-ranked stocks. Headlining for the bulls in front of Thursday’s technical thumper:

• Lehman (LEH) and strategic option initiatives.
• Better-than-feared Societe Generale report.
• Upgrade of AIG (AIG) in front of earning.
• Lower commodity complex continues to ease price worries.
• Fed’s subtle changes to policy statement has investors “Buy, Buy, Buying!”
• Microsoft (MSFT) analyst report of potential $20B buyback.
• Long-term outlook at Cisco (CSCO) helps investors bid large cap tech.

And then there was Thursday. Spearheading for a more cautious bull and less-gruff bear:

• Weak same-store sales spearheaded by Wal-Mart (WMT) prompts concern over consumer health.
• Nastier-than-expected AIG (AIG) loss.
• Citi (C) forced to buy in billions worth of ill-marketed and now-distressed auction rate securities per agreement with NYAG.
• Freddie (FRE) finds cap position in the red by $1.2B per GAAP.
• Surprise jump to six year highs in weekly claims stirs job worries.

Market Snapshot

Figure 1: S&P500 (SPY) Daily

Is it “Monbacky!” time again? In our last report a 3-Day Simple Pullback in the SPY was appreciated, to which kudos go out. At the same time, it was any longs were determined to be a tough bullish play if triggered around the Fed announcement. The thought was and is that too many eyeballs and fast fingers are typically involved. That being said, the preference is to trade other products while gladly pulse-taking other bulls efforts in the SPY….and to which we might say “MOOyah!”

Entering Friday, the interpretation is those same bulls may need another session of testing before making for a stronger “buy the dip” type entry. In fact, I’d almost rather take a breakout above daily highs than jump in prematurely, as conditions could always deteriorate heading into the weekend. Personally, I’m guesstimating there won’t be an immediate attempt at rallying significantly tomorrow. Hence, buying a breakout in the likes of the S&P500 is considered mostly a moot point and stronger “buy the dip” prices a decent reality.  

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.
• Late market FTD 7/29, 8/5 confirmation day.

Bearish Technicals

• EW 4 and possible double top / triple top near daily resistance S&P500.

GROWTH STOCK ANALYSIS

Sequenom (SQNM) is a recent addition to The Bulls radar below. The original observation was the small cap biotech was staging a three-week’s tight pattern. Three days later and a series of lower highs and lows, those multi-day lows and pattern are history, but not the stock, at least just yet.  

Being an optimist, I’m keeping SQNM on the radar as a possible high-level baser as long as it holds above the 18.75 area. A definitive break and personally, I wouldn’t want to be involved as a bull as a real change of character could be unfolding. The reality is that with so many tickers in the listed universe, the still-unproven company could always and quite easily find itself relegated to the discard pile of one-hit wonders.  

Elsewhere and cleaning up the proverbial house, Covance (CVD) is being removed after staging a nice continuation rally of several percent following its initial handle breakout on July 31. From the Bears list, Xyratex (XRTX) is being given the axe. The name has been given a month to break technically but instead has shown signs of a potential bottom or at a minimum, a not-too-friendly upside fling.

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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