MARKET ANALYSIS 

Money continues to grow on trees for a confident, apple-noshing bull, but gravity looks due for an appearance. For the weekly period, the SP-500 (SPY) is up 1.70% and giving 1400 “less vixing” reasons to see a different sort of March Madness in upcoming games investors play.  

Highlights for bulls enjoying a slam dunk, game-winning “SP-1400!”         

• Apple (AAPL) gains 6.35% for period on iPad rollout and broker upgrades.
• Naz’ breaks above 3K milestone to reach dot.com era levels.
• Headline breather and reduced credit / geopolitical threats.
• Bulls cheer JP Morgan’s (JPM) dividend raise and buyback Tuesday.
• Not-too-stressful tests for nation’s banks as 15 of 19 make the grade.
• Improving economy per FOMC statement.
• Better-than-forecast retail sales data for February.

Key Reasons for bears maybe not waiting for the arrival of spring:         

• “Bull-nanke’s” FOMC statement nixes idea of further quant easing.
• Trannies (IYT) and Russell 2000 (IWM) lagging behavior?
• SP-1400 and wildly complacent VIX at five year lows.

Technical Outlook

Figure 1: SP-500 ($SPX) Weekly Chart

When we last left off this past weekend with the Weekly Outlook column, we noted after consolidating and basically fulfilling our own estimated pullback of one to three weeks and 3% - 5% in the SP-500 with an actual two-week and 2.7% bout of technical digestion; the market appeared more compelling for bullish entries than at any other time in the last couple weeks.

The observation could be worthy of a hat-tip, though we did caveat that newly-minted optimism by stating we’d be more than a bit concerned if the VIX ($VIX) fell to fresh lows, coupled with short-term complacency readings and while the SP-500 toyed with its May highs. On that part of our analysis and with Monday’s lowly readings warning of just that sort of self-righteous behavior from bulls as the SP-500 continued to challenge resistance; we wrote in our WSLO daily commentary, “Let the buyer beware”, unless it involved the use of protective premium.

In the here and now of the latest and even greater wall of 1400 being challenged Wednesday, protective premium strategies such as married puts or a stock substitute strategy using calls with a portion of one’s profits, might still make sense. However, we're inclined to see vastly diminished upside potential given the meeting of time and price as our well-followed and well-traveled weekly Fibonacci butterfly has reached its targeted 1400 and the sometimes euphemistically called “fear gauge” looks anything but mindful of risk.

MARKET LAB

Bullish Technicals

• First Week Effect 2012.
• October’s historical record for producing bottoms.
• Early Day 3 FTD and Late Day 17 confirmation.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• Bear market time and price labels still in effect for some.
• Historically weak FTD.
• Apple’s (AAPL) muscling of SP-500 and Naz’ paints over less-sturdy technicals.
• VIX at five year lows while signaling complacent stretch vs. 10SMA.
• Fibonacci-based butterfly into 1400 complete.
• Entering final weeks of “Best Six” period for market.
• Failure of Transports (IYT) to confirm, as well as small caps (IWM).

RADAR WATCH

In our last report two weeks back, we wrote about still having faith in Bulls Radar constituent or umm, lifer, Molycorp’s (MCP) ability to stage a turnaround. With a gain of nearly 30% over the past week, that bit of anticipated optimism has been confirmed and hopefully replaced by some more dynamic collaring that’s been a long time coming.

From the Non Directional Radar, silver (SLV) has also continued to cooperate for long strangle or straddle plays as a drop of more than 20% over the same period has allowed for continued, in our estimation, profitable adjustments in a product which remains compelling for bulls interested in long volatility and curve, rather than deltas.

Finally, we’ve had a couple good ideas for directional bulls the past few days with names like Vmware (VMW) and Wells Fargo (WFC) triggering out of bullish price patterns, if readers follow our other various columns penned daily. We’re putting the former on the Bulls Radar.

Despite a gain of about 2.5% or so since discussing VMW’s handle breakout, shares are still very much in position relative to its weekly “W” mid-pivot of 104.38 and look approachable for strategies like a bull call spread. As to keep the radar tidy given the broader market’s precarious perch, we are saying goodbye, as well as what had been a “good buy” for a mused ATM call strategy in Microsoft (MSFT).

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.