MARKET ANALYSIS

Bear goggles are back in style as bits and bytes of global slowdowns, financial woes and everything but the kitchen sink, sink the broader market. For the four day period the “Cubes” (QQQQ) and “SPYder” (SPY) are off 4.73% to 7.32% on activity indicative of a grumpy class being back in session.

Highlights for investors donning the bear goggles over the last couple sessions include:

• Worries over Friday’s jobs report courtesy of weak claims and ADP data.
• Mostly disappointing same-store sales (ANF, JWN and M) data sans the ‘double-edge’ discounters (WMT, COST and BJ).
• Commode-like action in commodities (GSG) inspires slackening global economy sentiment. Ospraie Fund shutting its doors aids / spurs the price slide.
• Anchor Bankers announce difficulties with cleaning up the sheets (MER, AIG and LEH).
• “Tech Wreck” courtesy of Corning’s (GLW) LCD warning Wednesday.
• PIMCO’s Bill Gross prompts additional price gauging. Midday CNBC interview emphasizing ‘deleveraging of global financial marketplace’ and “I’m not buying it” attitude directed at the Treasury regarding the bond giant’s role in any and all bank offerings in the foreseeable future.

Market Snapshot

Figure 1: S&P500 (SPY) Daily

Since our last report, Elliott finally made good on an existing but ornery W4 short set up. Nearly three weeks of lateral transgressions foiling both bulls and bears triggered for a third time in the S&P500 cash and delivered a wallop of a confirmation in Thursday’s debilitating action.

Entering Friday, the bears are in control if we zoom out to our weekly charts. However, with the broader market sporting its first bonafide “VIX Stretch” i.e. market oversold signal in nearly two months, caution is certainly thought prudent for those traders just getting keen on the idea of shorting.

In fact, due to the 15% plus VIX reading over the 10-day moving average and in conjunction with a Bollinger price piercing in the SPX, a short-term buyer’s edge is setting up. However and realistically speaking, with Friday’s closely-watched jobs report on tap, planning accordingly has a lot to do with the intraday chart and much less with today’s closing reasons behind investors unified behavior, without taking on excessive risk in a very volatile 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.

MARKET LAB

Bullish Technicals

• VIX Stretch signal generated 9/4.
• Oversold market conditions.

Bearish Technicals

• EW4 SPY short signal via PS EBOT.
• Weekly downtrend major averages October highs.
• 3-Week lateral breakdown SPX.
• Seasonally bearish month of September.

RADAR WATCH

With a bit less wiggle and a lot more “zoom, zoom” to the downside, some schnitzeling of the lists below are in order. Most of the stocks from the Bulls Radar have gone on to forge lower prices, which should be of little shock to traders, all things considered.

Of the existing five names being monitored, more than half pulled back on lighter volume and overall, continue to maintain the integrity of their respective bullish consolidations. That being said, one stock being dismissed is Autodesk (ADSK). Heavier distribution, an inability to hold the prior week’s lows and an unsupportive moving average situation are the primary reasons behind the de-listing schnitzel.

Separately, Amazon (AMZN) is also being removed. Its technical situation is thought to be a bit more of a toss up. However, going off the weekly chart and an existing mid pivot of 84.98 from early June, shares have dropped below the 8% “small and manageable” threshold used by many growth strategists utilizing the “W” or double bottom base pattern.

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

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.