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MARKET ANALYSIS

A turkey trot into higher ground has been carved in half as economic concerns and other bearish innuendos usher in a December chill to begin the month. For the shortened 1 and half-day period, the S&P500 (SPY) is off 7.71% in still hard-to-handle conditions for bulls.

Highlights for the market’s more “Less Obamaistic” behavior: 

• Friday’s relative laggardship by tech on ST Micro (STM) warning and Nokia’s (NOK) “Sayonara” to bulk of its Japanese market.
• Chinese PMI Index contraction and worse-than-expected stateside ISM results on manufacturing reignite trader “How long and how deep” concern regarding global recession. Infrastructure / Materials (CAT, FLR, XLB) and commodity-related cyclicals (X, POT, SLX, MT) spearhead market decline.
• Whitney / Oppenheimer’s latest bombshell attacks credit card issuers. Analyst warns industry could cut $2.0 trillion in credit lines or 45% of available consumer funds. Related issuers and Anchor Bankers (COF, MA, BAC, V and WFC) lead to the downside.
• Stronger-than-expected Black Friday retail sales sacrifice margins on deep discounting and a not-too-jolly start to the all-important holiday season.
• BernankeSpeak from Austin says economy remains under stress despite policymaker’s best efforts to date. Further actions may include lowering Fed Funds and purchasing longer-term treasuries.

Market Snapshot

 

Figure 1: Dow Industrials (DIA) Descending

What’s all the hubbub about? It’s only a “textbook” 50% retracement in the Dow Industrials according to Guy D. of Fast Money fame. “Yikes!” Having said that, the CNBC mouthpiece did go on to say a break below that Fibonacci “glass half full” level would mean all bets are off.

This market observer’s thoughts remain a bit less appreciative. As discussed most recently in the Weekly Outlook, a short-term overbought condition into angular or descending resistance from 85 – 90 was anticipated. In the here and now and more important for bears shorting and bulls looking for a reason to be more cautious out of the “not-so-simple pullback”—the market decliner was anything but constructive. In fact, the higher volume percentage decliner was one of the worst on record and did occur on above-average trade.

The interpretation is the bulls realistically should have held the 38% retracement level, following last week’s impressive rally off extreme and reversal lows. The 38% level was part of an outlined zone from 83 – 84 described in today’s Midday Action. With prices now quickly oversold on a short-term basis, the view is the glass shown above is half empty, cracked and not primed for “buying the dips” until further mind boggling testing is had.

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 kind Q4 tendencies.    
• Test of 2002 lows S&P500.
• Day No. 6 of Rally Attempt 11/24.
• 50% retracement DIA and oversold short-term.

Bearish Technicals

• Lack of growth bases and sector leadership.
• Downtrend confirmed 12/1.
• Non-constructive pullback from rally attempt highs.

RADAR WATCH

Last Wednesday night we discussed being thankful and acting appropriately before “Profit-taking” became headline news, which occurred in spades on Monday. Looking at the Bulls Radar below and in trying to keep in sync with a decidedly lessened appreciation for the market’s rally attempt, a couple names are being removed.

Fuel Systems (FSYS) cracked moving average supports and looks to confirm a high pivot within a right daily chart shoulder from a 1.5-month H & S pattern. An eerily similar situation in biotech upstart Sequenom (SQNM) is also being acknowledged and taken off the radar as well.

Personally, the monthly charts in both issues are still viewed as being amongst the strongest out there. However, in a time when growth hasn’t been working or leading and the market has taken a decided turn for the worse—value hunting at lower levels wins out in those names.

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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