MARKET ANALYSIS

Out of a "Ho-Ho and Hope" situation last Thursday, Santa's ‘red slay' did make a brief appearance. However, a joyful close on Friday followed by another spirited Merger Monday has the major averages ‘mooving' higher once more. Coming into Tuesday's trade, the two day period for the S&P500 ($SPX) and NASDAQ Composite ($COMPQ) are up a wrinkled, but still wrapped gift of .61% to .68% on volume that has this hedge hog asking, "Do you believe in Santa?"

There aren't any reindeer sightings just yet, but with plenty of flying bulls seen in Monday's decidedly lopsided affair, some will say the red sleigh is already making the rounds. Others that don't look at hemlines and Fibonacci counts and that sort of market lore, may have seen falling oil prices, another wave of corporate marriages and maybe a technical pullback of sorts as reason enough to keep the nineteen to twenty week bull looking somewhat sprite to open up the week's action.

The US Greenback / rising Euro (FXE) relationship is still in motion and of concern. What the economic impact over the long-term might hold in store for the economy is open to debate, just ask three or more economists. On a technical basis the weekly chart looks to be in a freefall and continued on this corner's observations that an inverse cup-with-handle is the pattern in play. At a price of 82.43, the US Dollar is setting up for a test of the Cup and Dec 2004 / Jan 2005 lows of 80.39. While the impact of a continuing drop could net-net be good for the economy, its thought that perception will undoubtedly turn towards concern as it relates to the equity markets. At a minimum, it's an area of the market that's moving and should be interesting to monitor.

Market Snapshot

Figure 1: S&P500 ETF (SPY)

The daily chart above shows a short-lived "First Thrust" shorting opportunity outlined in the last report. Ultimately, that trigger proved not nearly deep enough to fully appreciate. That same action actually demonstrated relative performance for the S&P500 as it became the first major index to clear its recent highs. Sans qualified institutional accumulation, which declined versus Friday's activity, the overall closing figures in Monday's trade were heavily in favor of the bulls. Factoids such as 52 losers versus 449 winners in the new and improved S&P1409 and major industrial sectors showing a 30-to-1 positive bias support the finding that the bulls were in charge Monday.

Elsewhere, most highs in the market are still in place from two weeks back. Those highs more importantly represent a major fourth-quarter gift for bulls persistent and tenacious enough to believe that a rally in motion stays in motion. That type of behavior will be its own undoing sometime soon, maybe tomorrow or maybe next week. Maybe Fibonacci needs to tag the 21-week cycle before a high is set, that is of the intermediate importance and one the actually nips pullback artists in the collective bud.

A week ago the observation was that a bearish character change was finally upon the market. And in fact, Friday's action up to the final thirty minutes thereabouts, looked to possess the straw that broke the bull's back. Monday's final tally that includes the fore mentioned stats, of course has the Bovinus Optimus flexing once more and most investors fairly excited about the latest pullback. In this corner, with volume lacking, short-term optimism running high and all of the usual longer-term grizzly suspects still in place and a few bears having been jolted out of slumber once already: hedge hogged and bound still 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

·            Put/Call Ratio ISE Index 10-Day

·            Could the 21-week cycle ‘rise' to the occasion? 

BEARISH

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

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

·            Distribution day

·            Various sentiment measures 14-to-1 ‘da Bears

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

·            Market Vane & Investors Intelligence  

·            Persistent Yield inversion, 10-Year below 4.50% and  falling US Dollar

·            Commercial Traders Index futures largest short position since 2003

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

GROWTH STOCK ANALYSIS

I read some end of day commentary that began with ‘no arguing with the tape.' I beg to digress. Despite the averages actually trending higher throughout the session and lopsided positive breadth confirming the move, this market observer was equally impressed by an equally impressive and ‘udder' lack of follow-through in individual stocks, if you failed to enter in the first half hour of trade. In fact, I'd call it a coin toss at best based on my own special brand of eyeballing. Personally, I took a bit of shrapnel from a market-based short, but with a hedged portfolio of longs (breakout and reversal variety), the compensation for those efforts fell way short, if you know what I mean, of living up to Wall Street's version of the Little Drummer Boy and the bull market currently roaming. "Caveat Emptor" hedge hogs.

As for stocks monitored for bullish action from the watchlists below, Smith & Wesson (SWHC) looks to be confirming an existing Wave 4 EBOT buy signal. The gun manufacturer took out about two weeks of resistance within a two-month base structure that remains intact. Base highs are about 6% from the closing price of 13.96 after a gainer of nearly 8% in Monday's trade. The move accompanied by strong volume looks good all told. One potentially small caveat though. Some of today's ‘embrace', appears to have been inspired by whispers that ‘Brother Jimmy' was going to tout the stock on CNBC. As it turns out, that particular "Buy, Buy, Buy!!" signal never materialized.

One stock that did even better on a dollar basis was Investors Financial (IFIN). Unfortunately, for followers of this report and Elliott, that particular stock was selected as a short candidate. Monday's high volume punch through two week highs and the 50-Day combo is sufficient to say "no mas" from this corner.

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
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.