MARKET ANALYSIS

Something other than sunscreen being applied by the bulls continues to thwart any “Sell in May” activity. For the three-day period the “SPYder” (SPY) and Naz’100 (QQQQ) are up 1.47% to 1.79% on headline cheer and some likely expiration folly.

I think Bill Griffith at CNBC says it best when he points at how well the market does when the VIX goes below 20%. Using that logic, at 16.30% the gains witnessed are and were obviously a lay up. Not. Elsewhere, since our last report there were two sessions of wiggles and giggles on a flurry of mixed catalysts which ultimately had little to show by day’s end. Merger news at Hewlett (HPQ), proxy fights at Yahoo (YHOO), “far from normal” BernankeSpeak, Oppenheimer bombs in the financials (GS, MS, MER, LEH), technical panicking over retests and earnings road kill at Deere (DE) highlight the reasons behind the ups and downs and flat line performance.

Thursday was slightly different. Preceding a full-blown late day gallop higher on reasons unknown, M&A activity and renewed optimism over such possibilities had the headline scribes busy at work. CBS Corp (CBS) announced it’s acquiring CNet Networks (CNET) for $1.8B in an effort to act outside of one box and inside of another. A report had General Electric (GE) mulling a sale of its appliances unit for $5B to $8B, of which the latter figure might bring better things to the lives of those shareholders.

And finally, Green-mailer, umm Activist Investor Carl Icahn announced he was filing a petition to up his ten day and 59M share stake in Yahoo (YHOO). The move is aimed at proceeding with his proxy fight against board members that, in his words, “acted irrationally and lost the faith of shareholders.” Now there’s the real Mad Money.  

Market Snapshot

Figure 1: S&P500 (SPY) Weekly

With Thursday’s pin action turning into bonafide “pin action” on Friday (expiration day) in various venues such as “Dow 13,000!” not much has really changed for this market observer. As previously outlined, intermediate supports have been removed from the bulls’ quiver and other neutral-to-bearish factors have entered the picture. Hence, this corner remains much more guarded in approaching fresh longs with any intermediate-minded conviction.

For the bulls, today’s percentage climb did result in an accumulation breakout to fresh highs for the leading NASDAQ. Additionally, a close at trading range highs in the S&P500 sure looks like confirmation for higher prices after nine days of technical hemming and hawing in loose fashion. However and as the weekly chart shows, I can’t help but see a bearish ascending wedge into resistance.

The following factors and anecdotal evidence might be considered relevant in determining a suitable, limited-risk strategy in the coming days and weeks ahead.

MARKET LAB

Bullish Technicals

• FTD in place, confirmed uptrends NDX, SPX & DJ-30.
• Consensus survey.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”
• Sentimentrader.com Dumb $$ cross.
•  “Sell in May” market lore tendency.
• 8-week cycle off March lows.
• AAII Sentiment Survey.Distribution count one month @ four days for SPX. VIX nearing October 07 lows and VIX short-term stretch.

GROWTH STOCK ANALYSIS

“I see handles….lots and lots of handles.” That’s supposed to be a good thing, but given the comfort level of investors, I can’t help but guard against a picture that looks too inviting. Regarding those directional motivations in the current environment, you could say I’m a daytrader that’s willing to operate overnight and longer, if positions are quick to show some initial proof that I’m “handling” the market correctly.

I’ve added Frontier Oil (FTO) to the Bulls Radar tonight. Despite the “oil” in its name, it’s one of those not-too-fine refiners of late. That also means it’s not one of those inviting handles, which the list below already contains a helping of. What I’m seeing is a technical low. That’s based on daily (W5 signal), weekly (W4 and 200-week) and monthly chart evidence (50-Month, 50%, W4 and Bollinger) that a major low is favored rather than a continued trend lower.

It should also be stated the analysis on Frontier Oil doesn’t hold much regard for the fundamentals. The best that I can tell, as Wall Street’s best and brightest miss weekly inventories figures by wide margins each and virtually every time at bat, why bother. However, for those interested in reading further into the situation, I was swayed by a blog piece found at seekingalpha.com which wrote about future prospects based on the aggie boom for the likes of Frontier Oil. 

From the Bears Radar, MEMC (WFR) has been removed. After cracking lower from initial watchlist levels, a multi-day consolidation failed to result in a second breakdown from an inverse cup with handle and now has the earmarks of a double bottom, per the bulls.

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 “Coiled Springs”

Table 2: Basing Watch list

The Bears

Table 3: Bear Watch list


Chris Tyler
Staff Writer & Options Strategist
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.

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