MARKET ANALYSIS

Since our last report, mixed headlines aided by a market primed to reflect has paused for a constructive bout of profit taking. For the three day period, the “SPYder” (SPY) and Naz’100 (QQQQ) are off 1.44% to 1.95%, but far from out in the market’s nascent “confirmed rally.”

It’s “BOOyah Time!” or that period when one too many bearish headlines and / or catalysts have the bulls questioning whether recent efforts were misplaced. All told though, outside the financials (XLF), which have once more turned towards being viewed as America’s Anchor Bankers, the broader market has enjoyed a well-deserved and constructive break.

For the period, highlights worthy of schnitzeling something off the top:

• Oppenheimer financial bombs for money center banks (BAC, JPM, WB, C) and Broker / Dealers (MER, UBS). Lehman chimes in as well with lowered estimates.Clear Channel (CCU) deal latest victim of credit-market and less-aggressive bankers. Bearish comments from Paulson regarding need for further investment regulation. Google (GOOG) reduced at UBS and sees light “paid clicks.” Oracle (ORCL) casts doubt over business spending with luke warm report and guidance. “Bear Chair” (BSC) sells entire stake after Monday’s pop. Rumors floating regarding Lehman (LEH). Results of TSLF auction suggest demand, but most players / institutions wanting better rates.

Market Snapshot

Figure 1: NASDAQ 100 (QQQQ) Daily

“Anyone for a 50-day moving average? Bueller?” After three days of mostly constructive backing and filling peppered with a dose of increased headline worries, and voila, the NASDAQ 100 is testing technical supports. Of course, now that we’re actually testing supports, the bearish propaganda machine has reclaimed the spotlight. And for bulls previously insisting they’d like nothing more than a pullback opportunity, well they’ve been mostly quieted, as nerves are currently getting tested as those technical lines in the sand come into play.

Additionally for the bulls, growth stocks by and large, have continued to cooperate. In our last note, emphasis was placed on how stocks breaking out and / or near their pivots, would be acting, when the inevitable pullback did occur. So far so good, all things considered. While Thursday’s “first session” of “mixed” distribution did find a couple of high-fliers getting derailed, per IBD’s reading of the tea leaves from Wednesday night, the group as a whole, has been outperforming and acting quite well.

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

• FTD in place.
• Short-term neutralized / Technical testing mode major averages.
• Long-term indicators unilaterally point higher per sentimentrader.com
• Ultra-high volatility / whipsaws typically associated with bottoms.
• 20-week bull phase until late April.
• Super Bowl indicator: NFC win = +13% yearly gainer on robust 86% historical tendency.
• Jan / Feb +15 / 21 sessions with 1% or greater range in SPX historically points at gainers across all time frames, with 89% track record of yearly 16% gainer.
• AAII, Investors Intelligence, Market Vane & Consensus readings.PS Elliott shifting towards more even-keeled W4 Buys & Sells.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”

GROWTH STOCK ANALYSIS

Despite the fairly constructive action during the market’s three day pullback or technical pause, some house cleaning of the radars below is needed. The still-highly ranked Covanta (CVA) is being removed from the watch list after three days of “bullbacking” and two of those sessions showing distribution.

Imclone (IMCL) and Microsoft (MSFT) are also being dismissed for mostly unconstructive behavior. A failure to perform after a couple of opportunities has this market observer finally obliging with a “No mas” in both names.

In place of the trio above, I’ve selected two stocks, Mobile Telesys (MBT) and Koppers (KOP), as having the right combination of technicals and fundamentals to warrant placement on the Bulls Radar. For further details, this week’s Hot Shots describes this corner’s thoughts.

Elsewhere, Apple (AAPL) is being removed from the non-directional radar after motoring up more than 8% and into gap fill and moving average resistance. The initial Bollinger Band Squeeze has performed nicely, but has morphed into another situation altogether. While potentially bullish, I’m not “tuning in” at the moment.

And finally, Water’s (WAT), from the Bears Radar is being given the boot for jumping higher. After a decent downtrend some bearish profit-taking of the “Buy, Buy, Buy!” variety has rightfully been served up in accordance with prior observations.

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 “Coiled Springs”

Table 2: Basing Watch list

The Bears

Table 3: 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.