MARKET ANALYSIS 

A “well-Fed” bull fearful of missing out sets itself up for profit-taking. For the three day period and counting, the SP-500 (SPY) is up 0.70%, but as slightly gloomier conditions keep bulls deservedly inside for a second day.

Highlights for bulls supporting rally attempts and corrective lows:

• Pro-Austerity win for Greece.
• Greece quick to build coalition government.
• Extended Operation Twist with “as necessary” option to increase.
• Building permits data spikes.

Highlights for bearing in mind and prepping for the Worst Six: 

• Weak win by Greek pro-austerity camp suggests difficult fiscal road to Rome.
• More bad loans by Spain’s banks surface.
• GDP forecast for 2012 downwardly revised by Fed.
• Seasonal “Worst Six” and overbought conditions into key test (see below).

Technicals

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

Since last Thursday’s closing breakout and one graciously followed by an intermediate-based Follow-Through Day, bulls have rightfully had their way with the market from  a well-neutralized price platform showing levels of anxious fear not aligned with the panic of missing out. In the here and now of early Thursday trade, gains for the weekly period of about 3% are equally, justly under a modest bit of pressure.

With the removal of some overseas credit market risks and the Fed’s latest initiative laid out, investor sentiment has turned complacently confident and the only fear being that of missing out on further upside. That sort of bullish mindset has led to back-to-back short-term complacency readings in the VIX ($VIX), absolute prices at six week lows and back into the mostly normalized high teens. As the action is occurring while the SP-500 encounters potential resistance from its 62% retracement level and prior key April support lows; June is once more looking a bit more technically gloomy for bulls.

Given the circumstances, bears can’t be faulted for trying to reclaim a bit of lost ground given a tight technical leash. At the same time and for the bulls, conditions merit that some minimum digestive work to neutralize short-term, overly-optimistic sentiment readings is established before market prices might successfully stage a breakout above Tuesday’s highs.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• “Closing” corrective move of 11% into 1278 – 1300 SP-500 zone support.
• RSI 13 positive divergence off lower low double bottom.
• Eight week corrective cycle followed by weekly Kings & Queens reversal SP-500.
• FTD in place.
• VIX levels back at more historically normalized levels.

Bearish Technicals

• Fibonacci-based butterfly into 1400 potentially completes.
• SP-500 daily downtrend established into Worst Six period.
• “Worst Six” and June Gloom historically bearish tendencies.
• Key resistance of 62% retracement and prior April lows in SP-500.
• Back-to-back, oversold and complacent VIX readings as of Wednesday.
• Historically weak FTD signals for June.

RADAR WATCH                                            

F5 (FFIV) is being added to the Bears Radar. Shares are off Thursday morning by about 2.5% and working their way towards the lows of an established weekly flag pattern that’s been built below 200SMA resistance. The lagging price action of late follows a lower high established in April from a corrective base which is now looking better approached as a variation on a double top pattern.  

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.