MARKET ANALYSIS 

“Fed” up and complacent behavior succumbs to the overdue pull of technical profit-taking. For the weekly period, the SP-500 (SPY) is flat after “flying” higher in a slightly overly-confident extension of time and price according to Fibonacci.

Highlights for bulls confidently claiming the higher ground:         

• Larger weekly technical picture into April.
• Three day extension run in EUR/USD and quieted credit crisis alerts.
• Earnings for bulls spearheaded by Apple (AAPL), Caterpillar (CAT) and Netflix (NFLX).
• Fed possibly open to fresh quant easing given low inflation and weak job market.
• Buzz of Greece debt dialogue improving by Thursday.

Key Reasons for bears sensing too much complacency:         

• Troika and bondholders impasse with Greece.
• IMF cuts global growth estimates following suit of World Bank.
• Varied and mostly lackluster earnings (TRV, VZ, ERIC, GLW).
• Quieted but still in-the-mix credit market problems.
• Fed reduces 2012 GDP outlook to 2.2% - 2.7% range.
• Technical extension of price, time and complacent behavior.

Market Outlook

Figure 1: SP-500 ($SPX) Weekly Fibonacci Butterfly

As discussed most recently in the Weekly Outlook, a Fibonacci-based weekly butterfly pattern has us looking optimistically forward to prices in the SP-500 hitting fresh highs with a symmetrical eye on 1400 by April possibly. Entering the weekly period an extended 8-week run of 13%, both natural sequence numbers of Fibonacci, coupled with a six month low and “stretchy” short-term 10SMA differential of 11% in the VIX; the net action urged acting defensively first and waiting for a constructive pullback before getting too bulled up.  

It appears perfection based on our weekly count wasn’t meant to be, but the action has proven far from inviting for bulls during the period. What’s more, Thursday’s early action marked a short-term complacency signal in the VIX ($VIX) as a reading of 16.80% broke just more than 15% below its mean-reverting moving average.

Where do we go from here? Based on the technical evidence we’d expect some necessary backing and filling maybe down into a test of 1295 - 1300 before seeing a constructive opportunity as having unveiled itself. Further supporting that belief, the market certainly has that tired look to it. Just ask those Apple supply food chain bulls (BRCM, QCOM, CRUS, OVTI and SWKS) whose charts have failed to truly cooperate, despite the company’s massive upside earnings report. Net, net we wouldn’t be salivating just yet over Thursday’s technical tail turner from bulls.

MARKET LAB
Bullish Technicals

• First Week Effect 2012.
• October’s historical record for producing bottoms.
• “Best Six” period for market.
• VIX into more normalized high teens.
• Early Day 3 FTD and Late Day 17 confirmation.
• Successful 200SMA / Triangle breakout SP-500.
• Fib-based bullish butterfly projection 1400.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• 10-Yr. anniversary mark of ATH top in broader market.
• H & S weekly top SPY and trendline breakdown.
• Bear market time and price labels still in effect for some.
• Historically weak FTD.
• “Extended” 8-week Fib run of 13% of 9 weeks and 14%.
• Fresh lows in VIX and short-term stretch in excess of 15% Thursday.

RADAR WATCH

Given our concerns above regarding the broader market’s need for some constructive time off from feeding the bull, looking at defensive strategies first and not getting too indulgent, too quickly and eyeing the possibility of fresh percolating highs, is a priority for this strategist.

In saying that, a recent low-lying fruit or umm, nut technical breakout from Green Mtn Coffee Roasters (GMCR) and discussed in the Trader’s Radar column not too long ago, looks interesting as a pullback candidate. Earnings are scheduled for next Wednesday, which lends itself to the possibility of a dramatic move in the stock. Being pragmatic though and conscience of premiums, a bull vertical or modified bullish fly looks interesting.

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.