MARKET ANALYSIS 

Credit market and economic jitters establish some much needed, overdue and fearful investor-based quant easing into key support. For the three day period and counting, the SP-500 (SPY) is off 1.60% in early Thursday trade as bulls suit up in less foolish April conditions.

Highlights for bulls eyeing a corrective pullback:   

• “iShares Bull ETF” i.e. Apple (AAPL) striking fresh highs on “iPanel” buzz.
• Hawkish Fed seen as more likely to bring QE3 to the table.
• Easing Eurozone yields by Wednesday.
• Alcoa (AA) with base hit for bulls on surprise profit in 1^st inning of Q1 earnings reports.
• Fearful short-term, three day spike in sentiment ($VIX) reaching one month highs and first contrary signal in a month.
• Testing of key 1343 – 1371 support SP-500.

Highlights for quant easing and taxing behavior below “SP-1400!”:  

• Less-than-good March BLS jobs data from Friday sparks labor market worries.
• Hotter-than-expected 3.6% Chinese CPI data keeps central bankers handcuffed.
• Reignited sovereign debt concerns as Eurozone Debt PIIGS yields spike.
• Weak Chinese import data Tuesday.
• Hotter-than-forecast CPI data stateside and disappointing weekly claims Thursday.

Technicals

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

This week, a fearful ($VIX) and long overdue correction in the SP-500 saw prices move squarely into our well-discussed and key technical zone of 1343 – 1371 with a low 1357 landing midway into the support area.

Where do we go from here? We’d estimate 1400 and / or a total of three to five days of price consolidation above the lows to neutralize an overdone short-term reaction on the part of investors too focused on the quant easing of portfolios. Beyond that, with a weekly butterfly high in place and an “early and truly” “Best Six” period already bestowed upon bulls; we’d say the benefit of the doubt goes to the bears until proven otherwise.

MARKET LAB

Bullish Technicals

• First Week Effect 2012.
• Three weeks of official “Best Six” calendar cycle still ahead.
• Fearful VIX trifecta signal as SP-500 tests key 1343 – 1371 zone.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• Bear market time and price labels still in effect for some.
• Historically weak FTD.
• Fibonacci-based butterfly into 1400 potentially completes.
• “Early and truly Best Six” period from October lows in place.
• Failure of Transports (IYT) to confirm, as well as small caps (IWM).

RADAR WATCH

Bears Radar constituent the SP-500 ETF (SPY) finally enjoyed a classic and gracious test for positions such as a near or short-term and previously out-of-the-money put. Admittedly, a stubborn market may have given traders incentive to exit for a small loss since we put the SPY on the watch-list in late March.

In the end, three weeks of dojis to establish a pattern top were put together before a long overdue correction came our way. That said and given what’s already been said, hedging off that type of exposure has already made more than a bit of sense and cents over the past two days.

Shares of Baidu.com (BIDU) are up 2.50% Thursday but still shaping up as the type of technical pattern with strong room to the upside despite our less optimistic stance on the broader market. With the stock forming a tight three-weeks base (or handle) in the right side of a corrective weekly cup-shaped pattern, as well as sporting strong fundamentals and equally nice, liquid option markets; BIDU looks worthy of the Bulls 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.