MARKET ANALYSIS 

Whether a less-than-tasty “FIG” and / or one sour Apple, Wednesday’s action sets up some likely profit-taking ahead. For the three day period the SP-500 (SPY) is up by a narrow 0.04% but sporting a pair of reasons for a technical pause or maybe more bearish paws to enter the picture.

Highlights for bulls still pushing for higher ground like there’s no tomorrow:         

• Surprise weekend agreement (finally) on Greek austerity package.
• Monday and Tuesday’s “Green Delicious” Apple as the nectar of $500 is devoured.
• Notoriously conservative Bank of Japan extends asset purchase program by massive $129B Tuesday.
• Data provisions include retail sales ex-autos, Germany’s ZEW index, Empire, industrial production, housing.
• Weak but better-than-expected EU, German and French GDP data.
• Vague Chinese official’s promise of country’s central bank looking to assist Europe with its sovereign bailout fund.

Key Reasons for bears awakening during winter:         

• Investor realization or questioning of Greece’s ability to fulfill austerity pledge.
• One very red and not-so-delicious Apple (AAPL) on Wednesday.
• A less-than-tasty “FIG” Wednesday composed of FOMC minutes, Iranian saber rattling and growing Greece worries.
• EUR/USD breakdown Tuesday.

MarketOutlook

Figure 1: SP-500 ($SPX) Weekly Chart

It appears Fibonacci’s butterfly and our objective of 1400 in the SP-500 will have to wait. Not that we were expecting a series of weekly white candlesticks from the recent breakout above 1300 support. In fact and as discussed in recent weeks, we continue to see April as the time target which will accompany the anticipated price action.

In the here and now and now apparent on that same chart, there are a pair of reasons shown in Figure 1 strongly suggesting a technical pause or maybe more “bearish paws” are entering the big picture and likely to influence the near-term with some form of profit-taking. Currently, we still see a pullback as being constructively healthy and an opportunity to buy. That said, we’d be hesitant with fresh purchases, sans some backing and filling of 2% to 5% in the SP-500, given a less supportive set up in the VIX ($VIX) and EUR/USD this week.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• October’s historical record for producing bottoms.
• “Best Six” period for market.
• Early Day 3 FTD and Late Day 17 confirmation.
• Recent breakout above 1300 from 2-week congestion pattern.
• Fib-based bullish butterfly projection 1400.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• Bear market time and price labels still in effect for some.
• Historically weak FTD.
• Mildly less supportive VIX ($VIX) above 20% and consolidation above 10SMA.
• SP-500 Weekly Harami pattern or pair of reasons to see bearish “paws.”

RADAR WATCH

Recently appointed Bulls Radar constituent NetApp (NTAP) is up nicely in early Thursday trade following its earnings report. Last week we discussed the use of an OTM vertical as a way to participate in the event if traders were agreeable towards a detailed bottoming cup-with-handle pattern. Just as quick but maybe with profits in hand, we’re removing the name from the radar as the setup is no longer, thankfully, valid.

In truth, the daily handle did morph into a ladle-like design from our favorable analysis. But those types of technical shenanigans are one of the reasons why we stressed a strategy like the OTM vertical—and one made all the more attractive with NTAP’s liquidity and one point strikes. Further and for readers of our Option Watch column, we followed up on Monday night with some detailed thoughts on the use of an OTM bull put vertical which appeared to have some traders’ wallets amidst the slightly less bullish behavior in shares.   

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
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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.