MARKET ANALYSIS

After Monday's price scare, traders have recalibrated the bull with three sessions of "Ho-Ho-and hope." Coming into Friday's trade, the NASDAQ Composite ($COMPQ) and S&P500 ($SPX) are up a gift-wrapped 1.07% to 1.36% on end of month volume looking a bit like distribution and worthy of schnitzeling off the top.

Where did all the seasonal ‘Care Bears' go? After a brief stab at downside follow-through Tuesday morning, concerns over a falling Greenback and "that's Wal-Mart's (WMT) problem" were replaced with the latest market "Monback!" ‘Good' leadership from the energy complex (USO, XLE, OIH) versus the kind that makes for scary headlines helped prod bulls along. A stronger-than-expected GDP release that looked past any potential disturbances like a still firm PCE Price Index was also influential in Wednesday's "Comeback Kid" routine, now nineteen weeks old.

Thursday's brushing off of mostly negative news from every angle was quite impressive at face value. News such as disappointing same-store-sales (KSS, COST, JWN, GPS, JCP) couldn't stop them. A contracting Chicago PMI of 49.9% didn't do the trick either. Neither did a surprise spike in weekly claims [up 34K to 357K] and a collective rebuttal of "we don't like oil [up 4.36% 3-Day period] this high!" Finally, the Fed's most favorite inflation gauge, the Core PCE, hinted that prices are still elevated [.2% vs .1% est.] and a concern. Nonetheless and in this guy's somewhat cynical observation, that didn't stop the bulls from closing the major averages essentially flat on the session.

Hmm, does anyone else smell something other than reindeer? With market-weighted portfolios gift wrapped for traditional end of month Wall Street observances and the happy "S&P 1400" headline a reality to cap off those fantastic monthly games, umm gains, this corner suspects that there's something rotten somewhere other than Denmark. And after three days to get to investors "most favorite time of the year," this hedge hog isn't "ho-ho-hoping" for anything out of Santa's rally.

Market Snapshot

Figure 1: S&P500 ETF (SPY)

Where's my bull grinder? Away from headlines trumpeting a marvelous November, the most recent action actually looks to be setting up as a "First Thrust" shorting opportunity. Bah humbug, I'm sure. I can't take credit for the pattern however. Essentially the countertrend technique looks to short after a hard price drop from a trend that had been incredibly persistent. The pattern then waits for a multiday pullback [a.k.a. rally] and shorts after a daily chart pivot high is established. Retracements of 62% to 100% help in anticipating entries most often.

Since the sum of those parts pretty much describe the broader market's latest action, this market observer doesn't mind watching for potential entries. Throw in those hefty 15% to 22% gains and Elliott / Gann timing cycles, which are anticipated to be correct for more than one session, and anticipating weakness sounds even better. Throw in another dose of investor determination via the dropping CBOE Volatility Index ($VIX) and the still extreme ratio of Ursa Major  indicators versus their Bovinus Optimus counterparts, hedge hogged and bound looks like a nice gift heading into that most wonderful time of the year.  

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

BULLISH

·            "Sorry folks, the park is closed."

BEARISH

·            Long-term overbought and untested rally of +/- 20%

·            Short-term overbought and "First Thrust" patterns in motion

·            Distribution day

·            Sentimentrader.com Overall Model Outlook 18-to-0 ‘da Bears

·            Smart vs Dumb Money extremes @ sentimentrader.com: 38% vs 61%

·            50-Day MA's well-removed and untested in 18-weeks equate to 3% correction

·            Market Vane, Consensus Bulls & Investors Intelligence  

·            Persistent Yield inversion and 10-Year below 4.50%

·            Commercial Traders Index futures largest short position since 2003

·            11/21 & 11/22 represent Fibonacci 89 day count and Gann 90 from July lows

·            S&P 1400 & GOOG 500 make for sentimental tops 

·            Falling Greenback likely to promote bearish sentiment, right or wrong fundamentally

GROWTH STOCK ANALYSIS

From the prior "Bulls" watchlist, SW Energy (SWN), USG Corp (USG), and Titanium Metals (TIE) have all enjoyed some nice "Buy, Buy, Buy!!" action. The latter two are finally making good on existing weekly Wave 4 EBOT buy triggers after much technical huffing and puffing. Let's cross our fingers to see more upside resolve, but more importantly, remember to schnitzel some off the top and use all of our "options" before it becomes obvious. While all three are still acting very strong, daily chart extensions do lend themselves to posting some fresh candidates that might deserve further investigation by traders.

Figure 2: MEMC Elec Matls (WFR) Daily

One of the fresh additions that looks poised for further upside is MEMC Materials (WFR). The company is part semiconductor, part alternative energy and 100% volatile when it wants to be. That's a bit of a warning, as this is one of those stocks that typically rallies and tanks on its own terms and is very tough to track within the fore mentioned market segments.

That said, WFR does have existing Elliott Wave 4 EBOT signals in place on both the daily and weekly charts. Further, the more recent action shown above is what I'll call a "W" base, which is thought to be a bullish confirmation. With Thursday's volume thrust, WFR has taken out its mid-pivot highs of 39.59 set in late October, to confirm that pattern as a long candidate. The first zone of resistance using Fibonacci tools is highlighted from 42.25 to 44.25.

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

The Bears

Table 2: 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.