MARKET ANALYSIS

Out of the gate and full of "Ho-Ho and Hope," traders backed off from fresh multi-year highs in the S&P500 and opted for schnitzeling ahead of Friday's headliner of the week, the jobs report. Heading into the final session of the trading week, for the three-day period, the S&P500 ($SPX) and NASDAQ Composite ($COMPQ) are showing slight appreciation for gifts received by taking profits of -.13% to -.87%.

Some relief over a benign weekly claims figure had market bulls hoofing it to fresh terra firma in the S&P500 in Thursday's early going. Whether concern over Ecuadorian debt, an existing weak US $ / rising Euro (FXE), disappointing corporate news being poorly received (ORCL, XHB, HD, CREE, AAPL) or good news (GM, BA) not being voraciously embraced by our "Buy, Buy, Buy" side colleagues was the culprit: a downside reversal bar and distribution in the Naz' was the closing result. In defense of the bull at large though, with the broader indices schnitzeling amounting to the fractional variety off fresh multi-year highs, a written invitation courtesy of Wall Street's spin machine isn't honestly needed.

Market Snapshot

Figure 1: S&P500 ETF (SPY)

By Thursday's close, a higher high engulfing double top and a divergent RSI acting as confirmation have taken command of the action. Well, kind of. It's been close to a full twenty-one weeks since the market has corrected by 2% or more. While my own non-back testing methods of investigation aren't quite sure if that's a record for the last several years, it certainly implies an extreme situation and warrants treading very lightly for the time being.

This corner believes that persistent trend is fast approaching an abrupt conclusion. That call mind you, has been made more than once. But consistency to principles and caution don't get tossed of the flavor of the moment, week or four months and counting. We've already seen two sessions that flashed a change of character on the part of bulls over the past two weeks. Thursday marks number three. Unlike baseball though, if the third swing doesn't connect with investors, the bulls will still be hard-pressed to mount a consistent offensive game and worthy of support by anyone other than the most ardent mad money fan of the market.

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

·            Short-term Price Oscillator Naz' & SP500

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 MAs well-removed and untested in 21-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

·            21-Week Fibonacci count high in effect

GROWTH STOCK ANALYSIS

Two days of narrow range bars followed by the bulls piling into the popularized ‘red slay' vehicle of holiday lore has amounted to a continuation of some difficult directional trade. Personally, I'm set up slightly tilted towards the short delta side with a weighted index hedge against a few existing partial longs. We'll see what happens after ‘the number' comes out. As pointed out in Thursday's Market Beat, a weak or strong number could always incite the bulls towards profit-taking, as that type of activity has been thoroughly under appreciated over the last few months.  

Smith & Wesson (SWHC), which had been shaping up so well as of Monday evening, was wounded in after hours trade and bleeding down to the $13 level on the heels of its worse-than-expected earnings. As of this writing it's still in the right side of its weekly base, but it's not the type of action that you'd like to see, if you like your technical development for a growth stock, to be constructive. As you might recall, SWHC had been highlighted last time, because it was on the watchlist for bullish candidates. Secondly, it deserved notice as ‘Brother Jimmy' whispers had surfaced during Monday's trade. The ‘anticipation' never bore fruit but prodded the stock higher. Personally, I was concerned that the "Buy, Buy, Buy!" crowd might fold on an otherwise decent-looking stock and thought that particular "Caveat Emptor" needed further addressing.  

MEMC Materials (WFR) has enjoyed a nice run. The stock was highlighted a week back, sub-40 and below its W-base mid-point pivot. The performance makes it a dual winner for being both a semiconductor and alternative energy stock. At this time though, it's extended above its larger weekly ‘W' pivot of 41.30 and is deserved of being removed from the watchlist. Further, it's also seen as being in position for adjustments by any traders that found their own "Buy, Buy, Buy!" signal at lower levels.

Fuel Tech (FTEK) is another ‘runner' from observed support levels that were thought to be a low risk / high reward area for bulls. The stock surged nearly 15%, but has pulled back to test its prior four-week flat base highs, as well as its rising 8-Day EMA, which typically acts as support for momentum stocks. As such, FTEK remains on the list below.

Two other stocks moving higher, but against the anticipated observations of this report include Qualcomm (QCOM) and Akamai (AKAM). Without Elliott confirming the reason for bearish eyewear and my own brand of discretionary analysis failing to meet expectations, it's time to clear the sheets like the big boys upstairs.

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.