MARKET ANALYSIS
Bears receive early confirmation of a top, but a second-half push finds a few bulls back to business as usual in front of Tuesday’s closely-watched FOMC meeting. For the two-day period, the SP-500 (SPY) is fractionally frustrating both cup and double top market observers with its testing style gainer of 0.03% on reduced participation.
Key highlights for nibbling off highs within market’s confirmed rally:
- Fashionably strong retail sales data and European report on industrial production push bulls to fresh heights Friday morning.
- Well-worn closure for M & A three-way in Aggies (AGU, CF, TRA).
- Token Merger Monday headlines for Consol Energy’s (CNX) asset bid for DA’s E&P biz for $3.47B and Phillips Van Heusen’s (PVH) acquisition of privately-held T. Hilfiger for $3.0B.
- Upgrade for Wal-Mart (WMT) to “Buy” props Dow Monday as shares breakout.
Key highlights for profit-taking during the market’s double topping pattern:
- Anchor Bankers (KEY, C, AIG and BAC) are back Friday and Monday as profit-taking and more stringent bank regulation proposal weigh in on bulls.
- Declining slight miss in consumer sentiment and disappointing inventory data poke bulls into profit-taking Friday to close weak.
- Well-received Oppenheimer downgrade to semi equipment co’s (AMAT, LRCX and KLAC) Monday.
- Fresh concerns China’s central bank will increase rates to contain growth and inflation.
- Trader worry over “not enough” action by Euro Zone with regards to Greece to prevent further debt “PIGS” from causing economic problems.
Uncertainty in front of FOMC directive Tuesday before the opening bell.
Market Snapshot
Figure 1: SP-500 (SPY) Daily View Testing
Monday was shaping up as decent confirmation for a bit of long overdue profit-taking and a higher high double top pattern in the SP-500 following gains of more than 10.50% in five weeks time. A second half rally may have cast some doubt on the bearish top and whether bulls buying a rather aggressive shallow pullback will be rewarded with their efforts.
The market strategist in this corner isn’t a fan of today’s rally and based on the latest lackluster volume totals—institutional bulls also seem to still be less than impressed with the need to chase despite the SP-500 closing narrowly above its old highs.
Thus and in conjunction with all that’s been stated in recent columns and posted as bullet points below slightly favoring the bear camp, I still maintain the market is setting itself up for some type of double top pattern, depending on which index one looks at.
In defense of the bulls, “the edge or evidence” shown below isn’t so skewed in favor of the bears as to not give the bulls the nod should prices close above resistance on heavier volume tomorrow.
The problem, for bears or bulls acting out on their directional point of view is tomorrow’s FOMC decision will be announced in the premarket. The very unusual time slot for the week’s most closely-watched report means the possibility for a decent-sized gap is substantially upped.
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
- November thru April strongest six months for equities historically.
- Corrective activity of roughly 9.10% for SP-500 with 38% test July lows.
- Late FTD on 3.1.10.
- Increased market leadership from growth issues.
- Bulls say “Cup Breakout!” to SP-500 pattern.
Bearish Technicals
- 1930 Bear Market Rally repeat states EW Intl
- Weak institutional support during rally attempt off lows.
- Mixed and late FTD on historically late Day 16 of rally attempt.
- VIX “10% Stretch” / YTD lows on radar similar to 2007 rally top.
- Ten out of ten and 19 out of 25 suggest a stretched V bottom has become a stronger double top with two-step (AB = CD) confirmation.
- Bulls chant “M & A! M & A!” to sow their wild oats.
- Bears spy higher high double top in SP-500.
RADAR WATCH
From the Bears Radar KLA-Tencor (KLAC) was one of three names downgraded by Oppenheimer Monday. In the technical opinion of this market strategist, today’s heavy but not over-the-top price and volume pressure look to be solid confirmation of lower prices to come. On the daily and weekly charts, Monday’s close is just below bearish flag support after establishing its own double top from October to late December 2009.
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 |
Gilead | (GILD) | Biotech | 4.21 | 3.4.10 | Double Sym Tri |
Qualcomm | (QCOM) | Telecom |
| 3.11.10 | Reverse Tri Wkly |
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 |
KLA-Tencor | (KLAC) | NA | 4.21 | 3.4.10 | Weekly Bear Flag |
SP-500 | (SPY) | Mr Market | NA | 3.8.10 | Double T |
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.
