MARKET ANALYSIS 

A still supportive VIX finds bulls cutting through the daily headline clutter. For the three day period the SP-500 (SPY) is up 1.14% and challenging bulls to an easier test of recent intermediate highs.  

Highlights for bulls supporting the current uptrend: 

• Stimulus hopes emboldened by weak retail sales data.
• Bulls graze on stronger data too as Tuesday brings in toppers from Housing Market Index, industrial production and CPI.
• Second day of FedSpeak has bulls optimistic of imminent action following vague discussion of what might be used by policymakers.
• State sanctioned China Securities Journal suggests central bank should act.
• Energy complex (OIH, XLE, USO) demonstrate relative strength Wednesday.
• Large cap tech leads on the back of mixed Intel (INTC) results.
• The CBOE Volatility Index (see below).

Highlights for bears still seasonally inclined to believe: 

• China’s Premier notes economic weakness but fails to act with additional stimulus.
• Bearnanke’s monetary report pooh-pooh’s economy and merely reaffirms “ready to act if needed” spiel.
• Citigroup (C) and BofA (BAC) sales shortfalls.
• Weak retail sales and housing permits data.
• Seasonal “Worst Six” aspirations.

Technicals

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

It’s been a couple weeks since our last Market Barometer but for those readers that follow our daily analysis at Optionetics and the Weekly Outlook, a discussed uptrend channel in the SP-500 continues to point towards higher prices and an estimated test of the 1400 level. Standing in the way of further immediate progress is a closing test of the July highs. Personally though, we’re not too fearful that’s going to stop the bull in its tracks.

Entering Thursday, our optimistic view is tied to supportive secondary confirmation from a confident, but not complacent VIX ($VIX). The euphemistically called Fear Gauge is testing April’s pre market correction levels. The good news is the instrument isn't stretched short-term relative to its 10SMA. Furthermore, the VIX is sporting proper moving average alignment from its 10, 30 and 50SMAs unlike three months ago. And at the same time, the SP-500 is in a much more secure looking bullish pattern too than prior. As much, we’re willing to see a trend in motion staying in motion until more extreme optimism becomes apparent or the less desirable but always possible inability of support to hold. Currently, we'd estimate that important line in the sand to be stationed at the 1350 level.

MARKET LAB

Bullish Technicals

• First Week Effect 2012.
• “Closing” corrective move of 11% into 1278 – 1300 SP-500 zone support.
• 8 week corrective cycle followed by weekly Kings & Queens reversal SP-500.
• Second FTD signal 6.28.12.
• VIX testing April levels but with MA alignment and no short-term complacency.
• Established 3 point uptrend in SPX.

Bearish Technicals

• Fibonacci-based butterfly into 1400 potentially completes.
• SP-500 daily downtrend established into Worst Six period.
• Multiple distribution days.
• Historically weak June and July FTD signals.

RADAR WATCH                                            

While the above analysis is clearly in sync with higher prices, individual equities have been, quite admittedly, real hit or miss of late. The last three days in our coined iShares Bull ETF (AAPL) is a decent enough testament to those difficulties. As are the recently discussed names Vitamin Shoppe (VSI) and LinkedIn (LNKD) with their varied performances from prior, well-designed cup bases sporting tight handles.

Our interpretation of this quagmire is to keep it tight and light until more consistent action can be found. Unfortunately, we don’t know when that missing but important variable will reappear. Maybe the SP-500 needs to hit 1400 first? Maybe, but if that’s what it takes, it may require traders to locate short delta strategies rather than buying into a nice-looking (on some levels), but difficult bull.

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.