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Heightened worries over the “New Deal Version 2.0”, GE breaking promises to shareholders and general mad money risk aversion are testing the support of most market bulls. For the three day period the “SPYder” (SPY) and “Cubes” (QQQQ) are registering a mixed and difficult to handle gainer of .43% to a more ordinary and representative slider of 2.83%.

“Oy Vey!” While the old adage “Sell on Rosh Hashanah and buy on Yom Kippur” hasn’t quite worked for the S&P500, the bulls have been far from boisterous in front of Friday’s closely-watched jobs report and an even more guarded House vote for Paulson 2.0. Driving most investors into the category of bearish daytraders for the past couple sessions:

• “New Deal / Paulson 2.0” receives sudden vote for optimism by investors of bill passing through Congress. Strongest “MOOyah!” percentage climber in major averages is scored on Tuesday as short-sellers (outside the 799 & Counting Club) help give back half of Monday’s price plunge.
• Credit market signals via Libor, TED and credit default swaps continue to stress flight-to-quality and extreme risk aversion during period.
• General Electric (GE) finds CDS levels soar and shares plunge as investors bet on another financial casualty in-the-making.
• Value-based hunter-gatherer Warren Buffett enters into $6.0B GE deal, prompting other bargain-hunter wannabee’s to chase and then stumble lower on an even fresher capital raise of $15.0B.
• Distressful ‘moo’ heard in the Aggies (MOO, MON, TRA, POT) as Mosaic (MOS) announces production cutback.
• Worse-than-expected weekly claims of 497K, 4.0% drop in factory orders and mostly in-line but weak Case/Shiller Housing Index help keep bulls on the defensive.

Market Snapshot

Figure 1: S&P500 ($SPX) Daily Oversold

“Sell on Rosh Hashanah” still hasn’t worked in the S&P500 if traders opted to short one of the few remaining (it seems) vehicles out there. In fact, the celebratory pin action of Tuesday and stable ride on Wednesday before Thursday’s latest “maulbacky!” would likely have smoked many lambs sporting bear-wear threads. The moral of our tale is volatility remains obscenely high and prevents the majority of traders dedicated to the hard directional delta, from capturing the profit factor.

Entering Friday, with prices in the S&P500 having essentially backtracked to where they were as of our last report on Monday evening, the gospel according to Chris T. remains the same. Conditions are certainly oversold enough as to afford a major market bottom. However, regardless of whether you’re waiting on Yom Kippur or maybe a more legitimate follow-through day signal to occur sometime soon, hair-raising volatility means reducing positions and softening those deltas, regardless if you’re a bull, bear or hedge hog.

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

• Seasonally bearish September played out in spades.
• Oversold panic-like conditions Day 3 Rally Attempt SPY.

Bearish Technicals

• Weekly downtrend major averages October highs.

RADAR WATCH

“All Aboard?” Well, if you’re into the southbound ride, it’s been an easier ride all told. From the Bears Radar, railroad operator CSX (CSX) has given up 13% from its complex head and shoulders pattern. In the scheme of things and a recognized nasty ol’ bear of a market, another 10% to 20% of prices derailing, doesn’t seem too far-fetched. On the other hand, with current levels having exceeded minimum threshold allowances based on prudent money management—schnitzeling a little certainly makes sense and “cents.”

From the Bulls Radar, Stericycle (SRCL) took out initial supports before breaking traditional 8% money stops in Tuesday’s anti-market snuffing. As the stock had been a rather long-standing watchlist candidate and one of the few stocks to find fresh highs not so long ago, it falls into the category of “manageable loss.” In a time when many solid growth names make good on that other dastardly promise of dropping 70% from their highs, Stericycle is looking less like a pullback candidate and more like a weekly double top or bearishly esoteric Fib-based Butterfly.

And finally, the Bulls Radar could be filled with “Oversold!” candidates, as it is that kind of environment. However, being first to the scene with extreme price volatility responsible for that same attractive-looking situation is a great way to bleed the trading account. When conditions ease in that department, directional delta prospects from this report, can flourish once more.

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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