MARKET ANALYSIS

Since our last report there’s been a slight bit of schnitzel in May activity. However, other than headline noise, there’s nothing to suggest that the bears have reclaimed the upper hand. For the two-day period, the Naz’100 (QQQQ) and “SPYder” (SPY) are off .29% to .48% after striking fresh highs in the market’s confirmed rally.

All told, it’s been a mixed bag of good and bad—the good made to look bad and vice versa for data and catalysts. For the bulls, Friday offered a “non-recession bad” jobs report. Separately, the fed bumped up and eased its TAF collateral requirements and Microsoft (MSFT) boosted its bid for Yahoo (YHOO) by two bucks to $33 a share.

On Monday, headlines and reactions became a bit more complicated. Wireless provider Sprint (S) moved higher on a report that Deutsche Telecom (DT) is interested in the company. The combination would make it the worlds largest operator. A bullish response was also appreciated in Hovnanian (HOV). In this case though, following a bearish-sounding report and weak guidance, the flat finish was more akin to a “buy the news” reaction.

From there, catalysts were mostly of the bearish headline persuasion and strong enough to provide profit-taking incentive. For starters, investors at Yahoo didn’t enjoy hearing that Microsoft yanked its offer after management effectively scoffed at Friday’s improved shareholder value. Separately, a second-straight session of surging oil, totaling 7% for the US Oil fund (USO), also had equity traders increasingly worried. A firming US Dollar and escalations in producer Nigeria were primary catalysts affording visions of a pinch at the pump for businesses and consumers alike.

Weakness in Anchor Bankers and Dow components, AIG (AIG) and BofA (BAC) didn’t help either. Broker Friedman Billings noted up to $12.7B in CDS losses for the former and BofA possibly seeing $20B - $30B in writedowns related, in part, to its acquisition of Countrywide (CFC). And finally, an annual meeting at Berkshire Hathaway (BRK.A) sent a couple shareholders, well 800 to be exact, to seek cover. Shares were off 3,900 to 130,000 after the Oracle of Omaha announced a 64% decline in net income related mostly to unrealized derivative losses. Additionally, concern of problems for the nations housing market and banks as not being over and the US being in a recession was a likely prop for other investors outside of Berkshire stock to demonstrate some constructive and well-deserved profit-taking.

Market Snapshot

Figure 1: S&P500 (SPY) Daily

Friday’s price extension of investor enthusiasm didn’t quite hit the 200-Day SMA, but the “resistance sandwich” comprised of the upper Bollinger, Fibonacci and a VIX test of the December pivot lows was and has been ample evidence to produce a well-deserved pause in the action. Entering Tuesday’s session and as described most recently in the Weekly Outlook, the technical forecast at this point is for a 1% to 2% and / or two to three day period of digestion before seeing a stronger situation for fresh trend entries.

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.
• Confirmed uptrends Nazzie, S&P500 and Dow.
• 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.
• PS Elliott W4 Buys > W4 Sells
• Consensus survey.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”
• VIX test of key 20% first time in 2008.
• 20-week bull phase until late April.
• Sentimentrader.com Dumb $$ cross.
• VIX test of December lows and near “VIX Stretch” (>15% 10-day ma).
• Neutral to slightly overbought conditions as of Monday evening.

GROWTH STOCK ANALYSIS

Despite some profit-taking for the broader market, percentage gains for the Bulls Radar below have been apparent. Shipper Genco (GNK), an addition last Thursday, has already surpassed this corner’s 10% benchmark, a spot where adjustments and / or exiting are thought mandatory, out of a cup with handle trigger to fresh all-time-highs. That same action also extends the stock beyond what most growth traders would see as a good spot for a fresh entry (within 5% of the calculated pivot), until some type of consolidation might take place, but without breaking the “buy point.”

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.