MARKET ANALYSIS

Continued credit-related panics have resulted in a less-than-perfect Yom Kippur for bulls. For the three day period the “Cubes” (QQQQ) and “SPYder” (SPY) are off an “Oy Vey!” inspired 9.58% to 13.38% as mass visions of the Promised Land fall to the wayside.

Highlights driving daytraders through “Dow 9K!” and beyond:

• BofA (BAC) profit warning, dividend cut and $10.0B capital raise below share price.
• Wall & Main receive global rate relief with stateside cut of 50 bps. With bond giant PIMCO looking for 1.00%, early cheer turns into unanimous and ugly crowd jeer.
• Weak Q3 rollout courtesy of Alcoa (AA) and Metlife (MET).
• Soft retail sales / weak outlooks (KSS, TGT, JCP) and earnings disappointment at Abercrombie (ANF).
• Government lift on short sale ban helps fuel Anchor Bankers and other credit-ready casualties spiraling lower Thursday.
• General Motors (GM) reduced to Credit Watch Negative by S&P, shares tumble to fifty-plus year lows.
  

Market Snapshot

Figure 1: S&P500 ($SPX) Daily Oversold

When exactly are bulls supposed to nibble on near toxic equities? If it happens to be on Yom Kippur, 2008 is off to a dismal start based on historic Wall Street scripture. That is, unless one began their little nosh at the very tail end of Thursday’s most painful of lessons.

Entering tomorrow’s session, bulls will be crossing their fingers for some TGIF type relief off a knifing pattern and following multiple attempts at bottoms from already oversold conditions. The little talked about Lehman CDS auction which finishes, could provide just that sort of catalyst. That being said, record-breaking statistics in virtually ever nook and cranny of the market point emphatically at grossly oversold conditions worthy of a rally that lasts for more than a few extremely volatile five-minute candlesticks.

Technically speaking and maybe fundamentally as well, bulls should be stepping up to the plate. Value advocates touting the S&P500 at such and such multi-year lows and single digit multiples a week ago, should be ecstatic at these new and improved price levels. However, continued risk aversion has most dropping that argument and now likely moving in the other direction of questioning likely stale data.

As for this market observer, without making a recommendation, I’d generally agree with those willing to saddle up in these parts. However, I’d go on to say, that in an environment that’s making those old school dot.bomb days look almost quaint—that if you like XYZ at $20 per share, you might be “buffetted” with shares at $10 in these most mad money of markets.


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

• Oversold panic extremes in market sentiment / indicators.
• Knack for major market lows in October.
• Yom Kippur on Thursday.
• VIX hits all-time-highs of 64.92%.
• Multiple bottoming failures and oversold RSI 14 below all qualified supports.
• DJ-30 at 200-month SMA.
• Dumb / Smart $$ extreme spread at sentimentrader.com.
• Historic “Bullish For Stocks” vs “Bearish” 39 – 0 at sentimentrader.com.
  

Bearish Technicals

• Bear Market.

RADAR WATCH

In lieu of the last couple sessions and fresh unseemly lows set in many stocks and indices, I’ve taken the liberty of cleaning up the Bulls Radar to reflect a slightly stronger watchlist of oversold candidates. Guess (GES) has been removed as the undercut triple bottom viewed on the weekly, has failed to hold. In truth, when expanding the tea leaves to look at the monthly, a bearish picture does appear to be present.

In the place of GES, I’ve selected Suntech (STP), which is sporting a monthly double bottom. The alternative energy play still boasts strong numbers as of its last earnings, although a lid on government subsidies to the sub-sector and global economic shrapnel, could make leaning on things like P/E’s and PEGs, a dicey business.

And from the Bears Radar, Amgen (AMGN) is being schnitzeled from the list for putting in a good downside performance, but currently at supports as the broader market looks poised for a “Bull Raid” to the upside. In its place, China Life Insurance (LFC) is being posted as shares broke through a weekly triple bottom on heavy trade and closing 3.5% below picture perfect entries.  

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.