MARKET ANALYSIS 

Strong gains on the week turns the other trader's bear flag into a more promising bottom. For the near four day period, the SP-500 (SPY) is up 4.55% as the “fear” of missing out on bargains continues its momentum within a volatile home in the range.

Key highlights for bulls enjoying a triple bottom:            

• Broadcom (BRCM) acquisition of NetLogic (NETL) for $3.7B sparks influential deal support into market.
• China-bases sovereign wealth fund rescue of Italy triggers rally in Monday’s second half.
• BRIC nations in talks to buy Eurozone debt on Tuesday.
• Semiconductor (SMH) follow-through and well-received Analyst Day at Cisco (CSCO).
• Greece concedes to do what’s necessary to meet budget obligations Wednesday.
• European Commission proposes joint euro bonds to tackle debt situation.
• Discounted relief of Moody’s downgrade to SG and Credit Agricole.
• Central banks unite to implement three month liquidity ops to stabilize credit markets and European banking system Thursday.
• Improved sentiment on easing credit market issues.
• Fear of missing out technical inspiration (see below).

Key highlights for bears still drawn to grizzly flags:     

• Monday chatter of French bank credit downgrade and disappointing G7 meeting.
• Best Buy’s (BBY) weak guidance.
• Weak 0.0% retail sales, Philly Fed, Empire and jobless claims data on week.

Market Outlook

Entering Thursday’s final hour and the SP-500 is above the closely-watched 1200 level. It’s only (I kid!) taken four days of rally mode to produce a third stab at breaking through the notorious threshold within a now more well established congestion pattern that’s gaining popularity as a bottom.

Will three times prove the charm with higher prices to come? Bulls have more than a month’s worth of consolidation work from a rather nasty correction to support their case. A still historically fearful VIX ($VIX) above 30% and one not yet stretched relative to its 10SMA is also supportive of being optimistic the market can continue its rally.

For the bears, the weekly chart looks a good deal more bearish with its flag pattern that’s developed following a broken uptrend. There’s also the remainder of September and October which are historically negative months for the market for bears to remain resistant to the idea a low is already in place. Personally, in weighing all the evidence this technician’s takeaway is that it’s better to focus on being an option-based hedgehog and not get overly-bulled up or too grizzly in one’s directional ambitions.   

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.
• Still questionable growth stock action.
• Bearish flag pattern SP-500 following weekly uptrend breakdown.

RADAR WATCH

Given our continued ambivalent view on the broader market within its current congestion pattern; it still seems smart to emphasize not getting cute and growing too comfortable with that conventional wisdom of letting one’s profits run. In saying that, eBay (EBAY) is doing a fair job of trying to make believers stay the course with today’s gains of about 6.50% and the stock making fresh highs out of its corrective bottom...or umm, bear flag.

Personally, our view is still for higher prices and technically we like the look of EBAY’s leadership. But as a hedgehog-minded trader first, the option to adjust when conditions tempt us to let those profits run just a tiny bit further, is when it generally makes more sense and cents to reduce risk. As much, the likes of a bull positioned in a vertical might look at how an all call condor or a butterfly looks as a way to pay oneself partially, for a job well done.

It’s a short isn’t it? Late in the day, Juniper (JNPR) certainly looks like it’s trying to break lateral support on heavy but far from climatic bottoming volume. As such, given its refusal to participate with the broader market and attractive option markets to play the game like a hedgehog; JNPR is being added to the Bears Radar.   

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.