MARKET ANALYSIS

With financials once more dictating conditions, another round of “same as it ever was” is finding less giggles and plenty of downside wiggles. For the two-day period the “SPYder” (SPY) and “Cubes” (QQQQ) are off 0.89% to 1.38% on less cheers and lighter jeers.

Highlights for the bears over the two day period include:

• Friday finds latest Goldie (GS) cut and ARS buyback by Wachovia (WB) as drags in the financials and worthy of capping broader market gains.
• Growling bears with “global slowdown” chatter making still-weak oil a concern for investors versus potentially bullish “pump relief” support.
• Barron’s pens bearish likelihood of Treasury bailout of GSE’s Freddie (FRE) and Fannie (FNM).
• WSJ states Lehman (LEH) could face another $1.8B charge.

Bullish and now less-cheered catalysts for bulls include:

• Soros stake increase to 9% in Lehman (LEH) and ‘AA’ affirmation for Ambac (ABK). Mixed results but pleasant shopping conditions in retail (KSS, JCP, ANF).Economic relief from IP / CU data, Michigan Friday. Russian troop withdrawal, Pakistan’s Musharraf resigns. Early Monday cheer for mixed-to-pleasant earnings results (LOW, TSL, BHP). NAHB housing index comes in flat at 16 matching estimates.

Market Snapshot

Figure 1: S&P500 (SPY) Daily “Crossroads”

Lighter volume aside, last Thursday’s analysis of a market still making all the right moves from a pullback formation took a giant step in the wrong direction during Monday’s session. I’m reminded of a market’s ability to fall on its own weight, rather than think too bullishly about lesser volume representing resolve on the part of bulls.

Per IBD, investors can look to the lows of the FTD as being the intermediate line in the sand, as far as the intermediate rally is concerned. The problem with respecting that support is it’s a distance away from current prices. Additionally, other signs are already stressing caution.

First, with the recent rotation out of most commodity-related instruments, the market has tried to fill the void with the likes of small cap and NASDAQ, but yet to convincingly succeed with that switcharoo. Secondly, Elliott Wave per ProfitSource is now squarely on its wave 4 signal line. In conjunction with the larger weekly picture from last October’s highs taking on the shape of a countertrend rally, market neutral sounds like a good choice during some rather fickle bull and hard-to-handle deltas.

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

• Mid July sentiment / extremes worthy of intermediate low.
• Late market FTD 7/29, 8/5 confirmation day.

Bearish Technicals

• EW 4 SPY Wednesday pivot low 8/13 signals 8/18 intraday basis.
• Weekly downtrend major averages October highs.

RADAR WATCH

NASDAQ 100 component Millicom (MICC) has been added to the Bears Radar below. After enjoying a nice upside run of more than two years, a large continuation “W” base ultimately broke to the downside back during June and July. More recent action has shares consolidating in a bear flag below prior January and April supports.

Being “schnitzeled” from the Bulls Radar are General Electric (GE) and Blackrock (BLK). Shares of GE have gone up since first posted to the watchlist, but it’s been a long drawn out ride. With the latest action flashing a bit of distribution off an engulfing candle and retest of 50-day resistance, it’s time to clean house.

On the other hand, after a couple of weeks of waiting patiently for a breakout to hold in Blackrock, shares ultimately caved south of a traditional 7% price stop below the handle pivot. As such and despite being one of the few financials still above moving average supports, BLK is being removed.

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
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
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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