MARKET ANALYSIS 

Strong gains within a confirmed higher low triple bottom meet up with 1200 and still to be determined profit-taking entering Thursday.  For the prior two day period, the SP-500 (SPY) is up 2.10% as it “follows through” once again on a less-than-surprising reversal inspired by the “fear” of missing out on bargains within the other guy’s bearish flag.

Key highlights for bulls enjoying a triple bottom:            

• Swiss National Bank enters currency markets to support euro.
• Surprise increase for August ISM Services Index to 53.3.
• Euro triple play Wednesday as German is compelled to participate in EU bailouts by court and Italy and Greece announce budget housekeeping plans.
• Management shakeups at BofA (BAC) and Yahoo (YHOO).
• Upside above views guidance from semi outfit NVIDIA (NVDA) through 2013.
• Fear of missing out technical inspiration (see below).

Key highlights for bulls maybe still seeing grizzly flags:     

• Cratered overseas markets Monday on German election win by ruling party and heightened fiscal concerns regarding Italy and Greece.
• Fearful but not over-the-top VIX ($VIX), possible bearish flag, death cross entering the week.

Market Outlook

Figure 1: ProShares SP-500 (SSO) Weekly

Entering Thursday’s session and the SP-500 is knocking around the unchanged level after a bit of more ominous, presaged profit-taking by our high frequency trading cohorts in the premarket. Following two days of gains of more than 2% and a move of about 5.25% into 1200; this corner can’t blame the other guy from looking to “schnitzel a little something” in a sometimes very mad money market.

As it now stands, investors have taken a fearful and stretched VIX ($VIX) and bearish flag pattern and morphed it  into a bull fearful of missing out on an improved higher low triple bottom still appreciatively respectful of difficult to handle volatile price swings. This corner can’t necessarily blame that guy either. Most importantly within the congestion, whether your directional preference is to see bearish flags or bullish bottoms, the action continues to stress not overstaying one’s welcome and adjusting quickly or taking a hedge hog approach with softer delta spreads.

MARKET LAB
Bullish Technicals

• Third Year Presidential cycle.
• First Week Effect.
• H & S topping measured move fulfilled in SP-500.
• Triple bottom confirmed by fearful VIX ($VIX) readings.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• 10-Yr. anniversary mark of ATH top in broader market.
• “Worst Six” calendar after historic run.
• H & S weekly top SPY and trendline breakdown.
• SPY’s -19.70% correction “good enough” for 20% bear market label.
• Failure of FTD inside classic Day 4 – 7 window.
• Lack of growth stocks showing constructive technical leadership during correction.
• Sector weakness from key semis (SMH) and financials (XLF).
• Bearish flag pattern SP-500 following weekly uptrend breakdown.

RADAR WATCH

Given our more than somewhat ambivalent view on the broader market within its current congestion pattern; it seems like an awfully good time to restate last week’s “it’s at times like this when things look like they’re just getting started, that it’s typically a better time to manage risk.”

Those words were attached to our thoughts on eBay (EBAY) as it was making a nice intraday sprint through the typically ogled Death Cross while hitting fresh highs following its correction. It turns out our little bit of wisdom was timely as that same price action reversed and resulted in a bearish-looking gravestone doji and somewhat stiff percentage losses over the next couple sessions.

Those words still seem wholly appreciable whether its with an EBAY after a nice run or perhaps an eventual breakout in Priceline.com (PCLN) from a weekly “W” / double bottom pattern which currently looks suitable for some softer delta bullish consideration and the Bulls Radar below. 

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.