MARKET ANALYSIS 

One plus one equals a third day of financial aid and bargain hunting to further wipe away some of June’s gloom. For the three day period the SP-500 (SPY) is up 3.09% as nibbling off a bottom grows into a more fearful bid failing to consider what may lay “a-head.”

Key highlights for bulls burning off prior layers of June Gloom:            

• Surprise “Right-back-atcha!” bargain-hunting Monday off key support.
• Bulls confident bid in front of Greek vote receive daily rounds of confirmation.
• Sector bargain hunting in influential tech (GOOG, AAPL, MSFT) with Amazon (AMZN) receiving “Best Ideas” nod from JP on Tuesday.
• Technical financial aid for Anchor Bankers (XLF) as BofA (BAC) updates CDS and mortgage mess and credit card ceiling increase for Durbin Act (V, MA).
• Strong and well received earnings from Nike (NKE) on Tuesday and Monsanto (MON) Wednesday.
• Natural resource whipping boys silver (SLV) and oil (USO) finally attract bargain hunters.

Key highlights for bulls still feeling gloomy about June:     

• Road to fiscal austerity and improved credit markets. 
• Recent economic evidence of waning growth quiet but still lurking.
• More recent reports on housing from Case Shiller and consumer sentiment prove weaker-than-expected.
• Sayonara to QE2 program.

Market Outlook

Figure 1: ProShares SP-500 (SSO) Daily Chart

This week some increasingly aggressive nibbling off a bottom has grown into a more fearful bid afraid of missing out and failing to look at what might be “a-head” technically. It’s an early call but as shown in Figure 1 of the SP-500 proxy (SSO), the market could be developing a bearish Head & Shoulder top.

From recent overt fear as evidenced by the VIX ($VIX) at three month highs and jumping 25% above its 10SMA, investor sentiment is now more aligned with a fearful bull afraid of missing out. The price action is bordering on short-term complacency [VIX vs. 10SMA] with a differential Wednesday of -12.50% versus an actual signal at -15% or greater.

The pressure in the VIX is appreciated as having the upcoming holiday as at least partly responsible as investors look to discount theta. Nonetheless, in conjunction with a failure of a confirmed FTD or follow-through day to give the rally a more authoritative backbone of a bull; we’d say it has the earmarks of a bear instead.  

Time will tell if the price action in the SP-500 does play out as a right shoulder. For now though and looking “a-head” in the short-term, bulls no longer maintain the directional advantage and should prove better-served by using that hedge hog option in the marketplace.

MARKET LAB
Bullish Technicals

• Third Year Presidential cycle.
• First Week Effect.
• Correction of -8% in SP-500 into key 200SMA / March support.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• 10-Yr. anniversary mark of ATH top in broader market.
• Risk aversion and breakdowns in oil, silver and financials.
•  “Worst Six” calendar after historic run.
• EW5 / EW4 weekly in SSO.
• VIX back in prior nominally cheap trading range and nearing complacency.
• Bearish H & S development with right forming in fast, lighter volume bear market rally.

RADAR WATCH

It’s no surprise that with the broader averages lifting handily, what had been a bearish situation in Apple (AAPL) has reversed course and in keeping with its market beta. Our own previously discussed technical resistance zone of 325 – 330 has been broken with the actual offending candle occurring nearly a week ago. “Doink!”

In the here and now and as fresh conditions arise, with the market due for a high probability bout of profit-taking and perhaps something more i.e. a right shoulder, AAPL still offers ample other bearish evidence such as 50SMA resistance and its series of mostly lower highs and lows of recent months.

Of course, the option to see things a bit differently technically than presented is available. Bottom-line, technical analysis isn’t a hard science. Regardless of that opinion though, the option to keep whatever position one may take, is thought to make 100% better sense and maybe cents, with limited risk strategies using calls and puts.  

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.