MARKET ANALYSIS 

It’s make or break time for a less-than-simple, but still constructive four day pullback. For the three day period the SP-500 (SPY) is off 1.73% but a constructive doji and sour but not rotten sentiment could help bulls indulge in some bargain-hunting.

Highlights for bulls supporting some traders’ current uptrend:

• Bulls playing back-to-back hammer patterns with multiple supports in SP-500 up-channel.
• Contraction reading, but on the mend China flash PMI result of 49.5.
• Final hour buzz Tuesday of Fed mulling action for August or September meeting per WSJ.
• Well-received earnings (ALTR, BRCM, SYMC and JNPR) beats.
• The CBOE Volatility Index (see below).

Highlights for bears feeding on bullish tourists:      

• Continued Spanish credit inquisition escalates Monday.
• Reports of IMF readying to pull plug on Greece raises specter of default.
• Earnings disappointments from McDonald’s (MCD) and Apple (AAPL).
• Moody’s “negative watch” for Germany, Netherlands and Luxembourg.
• Weaker-than-forecast PMI contraction and trio of sentiment surveys for Germany.
• New home sales miss.
• Seasonal “Worst Six” aspirations.

Technicals

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

We’re guessing it hasn’t been an easy few days for directional strategists not seeing the now more obvious top in real time; and one made all the more difficult by Monday’s rather large and hurtful downside gap. Nonetheless from a sign of weakness on Friday as the SP-500 confirmed a “fragile” doji high within the uptrend channel, bulls looking to buy a rather difficult but straightforward four-day pullback, do have a well-defined stop loss to lean against; well, in theory at least.

Entering Thursday and with a higher low pivot in place, the SP-500’s “loosened” up-channel has found support off a test of the 50SMA. Given back-to-back fearful overbought readings in the VIX ($VIX) which also found resistance around the key 20% level and its 50SMA, we’re willing to interpret the directional edge in the near-term as favoring bulls. That said, with multiple distribution days, historic seasonal weakness and growth names not exactly showing technical leadership; we’d keep the bull on a short leash or umm, a tight collar to better navigate the market.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• “Closing” corrective move of 11% into 1278 – 1300 SP-500 zone support.
• 8 week corrective cycle followed by weekly Kings & Queens reversal SP-500.
• Back-to-back fearful readings in VIX while stalling at key 50SMA / 20% resistance and showing MA alignment.
• Established 4 point uptrend pivot low and 50SMA test in SPX Tuesday.

Bearish Technicals

• Fibonacci-based butterfly into 1400 potentially completes.
• SP-500 daily downtrend established into Worst Six period.
• Multiple distribution days. IBD signals “Market in Correction.”
• Historically weak June and July FTD signals.
• Friday’s sign of weakness within channel.

RADAR WATCH                                            

The best that can be said of Monday’s technical shellacking and even lower lows on Tuesday is individual equities had, as we discussed last Wednesday, been very hit or miss. As much, we cleaned the radars below of stale selections and opted to wait patiently for better opportunities.

One which looks interesting as a bearish resistance play, regardless if the market gets a bounce or not, is “drum roll please” …..Apple (AAPL). I’m sure there’s an App for that, as well as option strategies. Performing both by hand and the old fashioned way, we like the idea of bear credit spreads as a way to potentially profit and not worry about open-ended risk should the next, next big thing come sooner than imagined and a weekly lower high and daily channel breakdown below 50SMA prove fleeting.

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.