MARKET ANALYSIS         

Following a slightly less lucky St. Paddy’s Day romp to fresh highs, bulls take a well-overdue pause on “sell the news” style maneuverings. For the three-day period, the SP-500 (SPY) is up 1.33% but looking close to using the option to take slightly more aggressive profits.

Key highlights for continued chasing within market’s confirmed rally:    

• Surprise Fed directive maintains status quo and key rate language Tuesday.
• Triple corporate treat on Tuesday as GE (GE) announces profit and dividend growth resumption ahead, bullish analyst call for Intel (INTC) and above-views guidance at Microchip (MCHP).
• Day-to-day and sometimes euphoric “Greece Good!” banter from bulls. S&P removes country from CreditWatch list.
• Wednesday technical follow-through on Fed relief carryover, Hartford’s (HIG) “we’d like to pay back Uncle Sam”, Massey’s (MEE) acquisition and both Britain’s and Japan’s status quo on rates announcements.
• Beats and good outlooks from Nike (NKE) and FedEx (FDX).
• Latest batch of economic data (PPI, CPI, Leading Indicators, Philly) all match or best views.

Key highlights for profit-taking during bulls favorite program of “Chasing to the Stars”:  

• Bulls tire on Thursday despite uniformly good economic and corporate data.
• Canary-like weakness in optimistic-sensitive commodity group (FCX, XLB).
• Poor sales metric from Caterpillar (CAT) and Chesapeake (CHK) downgrade to “Hold” act as drags.
• Stronger US Dollar (UUP) helps pressure the carry trade on “Greece Bad!” buzz country as German finance spokesperson says country should turn to IMF for help.

Contrarian breaking of double top and too much pundit cheerleading (see below).

Market Snapshot

 

Figure 1: SP-500 (SPY) Daily Extension

On Monday night we made the caveat that temporary inclusion into the bear clan would require removing oneself from that faction if the SP-500 managed to break above resistance on higher volume.

Following Tuesday’s determination by Mr. Market to make good on that possibility (Doink!), bulls managed to continue the chase to fresh recovery highs on Wednesday before Thursday’s inside doji style “sell the news” ode to profit-taking.

Entering Friday, the “decision candle” should resolve itself directionally. Regular readers of this column probably can guess which direction I’d vote in favor of. Aiding the belief the bull has gone a bit too far, once more, are a couple quips from the Fast Money gang over the past twenty four hours.

Apparently and according to part-time anchor Gary “Something-or-Other”, under-invested institutional money managers have no other course of action but to chase the market higher into the end of the quarter.

In truth, based on the relative volume of the correction during January into February versus much weaker sponsorship of the rally off those lows, I’d say he has a point about those professionals having too much cash and not enough tickers on the sheets.

But, with more than two weeks left before those P & L ledgers are crunched for performance, that kind of defense for momentum seems precarious at best and a better reason to believe this time is really no different than past cycles when the music suddenly stops.

Secondly and in today’s session, Dr. J was pointing out how the VIX’s current trend towards two year lows, was in fact bullish based on the futures contracts pricing versus normalized volatility, I believe.

Maybe I should have turned the volume up for that one and in order to get the storyline nailed down? Regardless though,  if history is any indicator, anytime I hear the defense card pulled out for a trending VIX to continue on its path after a very long run in one direction—I can’t help but see a trend in motion nearing a more abrupt conclusion.   

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.
• Recent VIX “10% Stretch” / YTD lows on radar similar to 2007 rally top.
• Broken double top with extended two-step (AB = CD) confirmation.
• Bulls chant “M & A! M & A!” to sow their wild oats.
• Bullish defense of end of month chasing by under-performing funds.

RADAR WATCH

Thank you “Barron’s Online.” A plug today of Qualcomm (QCOM) suggested the company’s late January technical bludgeoning due to its missed company-provided forecast has created “a compelling opportunity for patient investors.”  

Bargain-hunting bulls’ reaction to the analyst note was good for a near 4.00% but hardly-stretched push in Thursday’s session. The action broke above two weeks of lateral resistance and looks to further confirm QCOM’s eight month broadening triangle pattern low.

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
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.