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Hot Shots: All Aboard or Train Wreck?

By Chris Tyler, Optionetics.com | Fri September 21, 2012 7:05AM PT

As we move towards the last trading week of September, a period historically renowned for its bumpy corrections and not to mention its sometimes grizzly neighbor of October, 2012 has so far been anything but troublesome for bulls with the SP-500 (SPY) up close to 4% for the month. With the latest action shaping up as a rather constructive and benign looking simple pullback into the 10SMA after setting four-plus year highs and the VIX ($VIX) refusing to shy away from its confident multi-year lows, is it time to say “All aboard” or be careful of an imminent train wreck?  

As discussed about two weeks ago, if traders believe in the Dow Theory and its ‘train’ of technical thought which holds confirmation between the industrials (DIA) and transports (IYT) as sacrosanct; bears may be looking to climb on board the market. Despite the DIA setting fresh multi-year highs, the IYT has gone from attempting to break out of a neutral, but bearishly-positioned symmetrical triangle to a quick test of pattern support on Thursday. The grizzly pressure was due largely to a rail-road’ing of sorts from Norfolk Southern’s (NSC) south-of-analyst-views profit warning for its upcoming third quarter.

Figure 1: Dow Jones Transports (IYT) Daily

On the other hand, one chart which was a concern a couple weeks back, but now is potentially trying to bottom, is the world’s largest semi (SMH) outfit Intel (INTC).  Since we last wrote about Intel on September 10th in this column, shares have proceeded to move lower on the daily and confirm our prior worries on pending weakness. The good news is that same pressured price action when viewed on the big picture of the weekly chart suggests Intel’s downtrend could be near completion.  


Figure 2: Intel (INTC) Weekly View

Looking at Figure 2 and Intel’s weekly chart, we’ve taken the time to draw in a Fibonacci-based Gartley pattern. The two wing price structure has developed off the classic 38% and 62% retracement levels from this past year’s low to high. In turn, the pattern also maintains a nice mirror-like 100% two-step pattern in forming its second wing.

Should INTC’s lows of 22.83 from last week hold and shares confirm a bottom by proceeding to move above the current inside candle’s highs of 23.52; that action could perhaps embolden bulls to pick up the technical pieces and help support the broader market from securing any unseemly corrective activity of its own. And if the pattern fails to hold? Given the situation in the transports, there’s time yet for a technical train wreck in 2012.



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. 


Recent articles by Chris Tyler, Optionetics.com

September 21, 2012  -  Wall Street's Friday Lunch Options
September 20, 2012  -  Wall Street's Thursday Lunch Options
September 19, 2012  -  The Expected Move: Bed Bath & Beyond Earnings
September 19, 2012  -  Wall Street's Wednesday Lunch Options
September 18, 2012  -  Wall Street's Tuesday Lunch Options


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