It’s September and perennially a period of anxiety for bulls, but so far 2012 has proven otherwise with the likes of the SP-500 claiming fresh four-year highs this past week. That said, with a month known for its share of corrections, in fact more than its infamous October neighbor, should bulls still be fearful of something other than the fear of missing out on further upside? We think so and worry that if a picture can speak a thousand words, then the three bearish and one token Goldilocks charts depicted below, back up that concern.
Figure 1: Transports (IYT) Daily
If traders believe in the Dow Theory and a train of technical thought which holds confirmation between the industrials (DIA) and transports (IYT) as sacrosanct; bears may be looking to climb on board the market. Despite the DIA setting fresh multi-year highs by Friday, the IYT remains embedded within a symmetrical triangle pattern. As the neutral formation has formed after a lower March 2012 high which fell well short of its May 2011 highs and prices remain below all key and aligned moving averages; bears look to maintain the benefit of the doubt.
Figure 2: Intel (INTC) Daily
The semis (SMH) are another important sector that are underperforming on a technical basis. Possibly more worrisome is Intel’s (INTC) chart. The world’s largest semiconductor manufacturer warned on Friday that it expects its Q3 outlook to be below Street views. With traders reacting sympathetically by sending shares to fresh lows for 2012 from a congestion pattern formed around resistance from a prior descending triangle pattern; bulls appear to have yet another important warning sign on their hands.
Figure 3: CBOE Volatility Index ($VIX) Monthly
A third bearish sign for the market is the CBOE Volatility Index ($VIX). The euphemistically-called Fear Gauge reversed quickly this week and is now just more than one point above its August and five year lows shown above on the monthly view. Further, with daily prices pushing 13.25% below the mean-reverting 10SMA; the overall picture points at investor confidence quickly working its way into less desirable behavior associated with complacency and prone to getting nipped in the bud.
Figure 4: SP-500 (SPY) Daily View
Finally, the SP-500 has more or less worked its way into a Goldilocks situation technically. With the fore-mentioned bears lurking in the market, at a minimum, it’s rather optimistic and yummy price extension into up-channel resistance appears the kind in need of some likely digesting i.e. profit-taking, at a minimum. Net, net traders might prepare look at protective option strategies such as portfolio insurance with the SPY, or maybe a call substitute position, married put or collar on individual holdings in advance of what might be a potentially grizzlier storyline for the market in the weeks ahead.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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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.
