MARKET ANALYSIS
After tagging an incredible technical ten in a row, bulls opt to schnitzel a little on less exciting economic and corporate realities. For the three-day period, the S&P500 (SPY) is up an additional 1.79% as more of the same ol' green shoots efforts or worried climbing keeps market bulls smiling in September.
Key highlights for buying a little something during the three-day period:
- Economic data in-line increases or beats (Empire, retail sales, housing starts).
- Bernanke's nod on Tuesday of recession "likely over."
- Green shoots momentum in picks and shovels (XLB, GDX and OIH) spearhead for broader market.
- Wednesday's "Buy, Buy, Buy!" as Cramer does the homework on Apple (AAPL).
- CPI, Industrial Production and Philly Fed data have bulls breathing easier.
- Overseas tail wagging strength and expiration-related short-covering.
- AMR (AMR) finds deep-pocketed passengers on board with liquidity provision of $2.9B.
Key highlights for schnitzeling a little something during the latest rally to fresh highs:
- "Fearful" bulls worried of missing out put VIX at YTD lows and Bollinger test.
- Fairly hard technical break of profit-taking on Oracle's (ORCL) in-line results.
- See "Market Snapshot" below.
Market Snapshot
Figure 1: S&P500 (SPY) Overbought Daily
Three more days of higher highs and the only thing that's become perfectly clear is how overbought the market is. I guess the other is the weekly view reinforces the notion of an inverse H & S as the market's "W" appears to have been broken technically by the latest press higher.
Ten straight days of higher highs are nothing to take lightly when it comes to profits that might still be on the table. Already CNBC is flashing headlines of "Stocks Retreat From 11-Month Highs" as if there's been retribution for gains of 7.25% over the past ten days. Let the brainwashing begin as I quite honestly believe a much harder-to-handle price pinch is at hand.
At this juncture bare minimum profit-taking of 2% - 3%, the kind which wouldn't even register on the weekly chart, should be prepared for. The reason, individual issues will, at the same time, shed a very likely 5% to 10%, if the stock has been any sort of high beta muscle for the market.
Names like Apple (AAPL), Baidu (BIDU), Wynn (WYNN), Joy Global (JOYG) and even General Electric (GE) all fall into the category of being technically prone and due for the harder-to-handle price schnitzel.
And of course, if healthy but normal corrective profit-taking took us down 7% to 8% and back to "SP-1000", an actual "Monbacky!" style reality would be upon investors. As for Mr. Market's primed technical platform, the new and updated daily view shown above emphasizes why this time isn't likely to be any different, but possibly a bit more severe.
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
- Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
- Weekly Inverse H & S being breakout from October lows. "MM" of 113 - 120.
Bearish Technicals
- 1930 Bear Market Rally repeat and "W" pattern SPY?
- Weak calendar months of September and October.
- Consistent weekly breakouts suspect.
- Ten Day "Higher High" Gravestone Doji in SPY. Short-term overbought.
- Bollinger and YTD test in VIX.
- Healthy corrective action back to "SP-1000."
- Third time the charm? Potential W5 Daily and W4 Weekly in SPY.
RADAR WATCH
Finally, the market's latest wave of prodding and pushing took Bulls Radar selection Polycom (PLCM) with it and into the Promised Land. Personally and as I've addressed in recent pieces, it hasn't been the easiest of tasks finding a decent weekly base, solid fundamentals and seeing that translate into market-sized or stronger gains on the price chart.
That being said, PLCM did manage to breakout from a nicely-developed bull flag. The percentage gainer also puts shares well north of the pattern and makes it a prime candidate for schnitzeling a little and taking it off the radar for the time being.
The Bulls Radar is also removing Potash (POT). Shares have managed to tack on about 8% since being posted. Truthfully that's not a whole lot for the name and I don't consider the name technically extended. However, rumors this week of "takeover chowder" and this corner having more respect for the value determined at the Motley Fool than the clown on television at 6:00 ET, translate into removing POT's green shoot efforts while they still look awfully ripe.
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
Company | Symbol | Sector | Earn. | Tracked | Pattern |
Trimble N | (TRMB) | Technical Eqmnt | 10-22 | 8-27 | 4 Wk Flat |
Table 1: Bull Watch list
Non-Directional
Company | Symbol | Sector | Earn. | Tracked | Strategy |
NA | NA | NA | NA | NA | NA |
Table 2: Basing Watch list
The Bears
Company | Symbol | Sector | Earn. | Tracked | Pattern |
Sears | (SHLD) | Retail | 12-2 | 8-31 | Bear Flag |
SP-500 | (SPY) | Mr. Market | NA | 9-17 | OB Corrective |
Table 3: Bear Watch list
Chris Tyler
Senior 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.
