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“Sell the New Deal Version 2.0” followed by fresh credit contagion fears sink the markets to fresh lows and mad money highs—depending on where one looks. For the two day period the “Cubes” (QQQQ) and “SPYder” (SPY) are off 5.14% to 6.37% on further “what were we thinking” convictions.

It’s been more “Oy Vey!” conditions for market bulls. And with three days still remaining before further folklore relief might enter the picture, investors caught nibbling on some lean and mean bull behind closed doors are hoping something other than repentance is in store. Highlights driving daytraders through “Dow 10K!” and beyond:

• Better-than-feared jobs report and Version 2.0 optimism spearhead early relief efforts on Friday.
• Wells Fargo (WFC) surprise $15.0B non-government assisted bid for Wachovia (WB) helps bulls outside of Citigroup (C).
• Paulson Plan 2.0 passes, but investors fumble over the nitty gritty details, sending broader averages reeling lower Friday afternoon.
• Across-the-pond ripple effect as credit contagion finds German government bailing out country’s 2^nd largest developer, Hypo RE, for estimated $68.0B.
• Latest flight-to-safety / risk aversion conditions in credit markets force Fed to dig deeper, expanding loan facilities up to $900B.
• Sentiment unraveling.

Market Snapshot

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

In our last report it was stated conditions were oversold enough as to afford a major market bottom. Also expressed and as important; regardless of whether traders were (and still are) waiting on Yom Kippur, a follow-through day signal (still) or some indicator of one’s own and possibly proprietary choice—hair raising volatility meant reducing positions and softening deltas were in order.

Entering Tuesday, wild price volatility is still a reality for all investor types looking to enter the fray. However, panic style extremes hit in indicators such as VIX, TRIN, ADV/DEC, and total option volume (and a host of other measures) do make the art of knife catching a much more interesting proposition.

Furthering the bull’s cause at this stage is the daily chart. Risk per technical staples such as a candlestick hammer low requires traders to utilize stops in excess of 7% in the likes of instruments such as the S&P500. That’s nearly unheard of and underscores the idea of a (volatile) bottom now in place.  Additionally, after a close test of its 1000 level, which would surely look “close enough” to more than just government workers, were a rally of more than one day to ensue—oversold looks a lot less likely at becoming more so.

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

• Oversold panic extremes in market sentiment / indicators.
• Knack for major market lows in October.
• Yom Kippur on Thursday.
• VIX hits all-time-highs of 58%.
• Wide bodied Hammer low near oversold RSI 14 and SPX 1000.

Bearish Technicals

• Weekly downtrend major averages October highs.

RADAR WATCH

“All Aboard?” The southbound train in rail operator CSX (CSX) and virtually all market vehicles have served the bears well. As it relates to the watchlist candidates below, after an extended run nearing 25% at its best, CSX is being removed from the Bears Radar for staying on track but now well beyond practical money and pattern management objectives.

On the other dirty soiled hand, Global Payments (GPN) had been making all the right moves to the downside, when that pesky thing called earnings came out. And surprisingly enough it seems, traders with the help of their bearish friends, liked what they heard. Unfortunately, as a Bear Radar component, that same action also clipped pattern shorts by a likely 4% to 10% depending on entry style and exit selection—to which and always, are the sole responsibility of the individual.

Readers that follow the radars below will notice I’ve beefed up the Bulls Radar. The five fresh entrants are based on the broader market registering extremes worthy of bottoming, as well as each stock’s own price ineptitude of late, which should change quickly, once more directionally benevolent conditions arrive.

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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