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Market Barometer: May 3, 2012


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MARKET ANALYSIS 

Entering Thursday, it’s a holding pattern for investors with eyes on Friday’s jobs report or maybe further QE3 confirmation. For the three day period and counting the SP-500 (SPY) is virtually flat in and around 1400 with one bull’s cup-shaped corrective base squaring off with the other trader’s double top.   

Highlights for bulls supporting FTDs and corrective cups: 

  • Tuesday ISM report shows stronger-than-forecast 10-month highs.
  • China PMI assist for bulls as modest miss nonetheless marks 13-month high.
  • Quieted optimism of weak data equating to QE3 confirmation.

Highlights for bearing in mind and prepping for the Worst Six:  

  • Weak spending and Chicago PMI data and “R” rating for Spain on Monday.
  • Britain’s weak 50.5 PMI reading hints its newly anointed recession could prove tough.
  • ADP employment disappointment with hiring of 119K vs. 170K forecast.
  • Weak contraction readings for German and Eurozone PMI data.
  • Seasonal “Worst Six” following weekly butterfly top for SP-500.

Technicals

Figure 1: SP-500 ($SPX) Weekly Chart

Entering Thursday and the SP-500 continues to trade mostly flat and in keeping with the first three, albeit sometimes bouncy, sessions this week. The consolidation work, along with the past six weeks is taking the shape of a classic corrective weekly cup that’s held prior resistance versus a bearish butterfly top looking for double top confirmation as we enter the seasonally weak “Worst Six” period for the market.

Our technical interpretation continues to be a cautious one and much more concerned with downside risks. On the other hand and discussed earlier this week, we are mindful of Bullnanke and the possibility of the Fed Chief actually tossing investors a QE3 Hail Mary. Were that to occur, maybe the other guy’s current uptrend would become more aligned with the rising tide variety rather than the Apple (AAPL) varietal.  

MARKET LAB
Bullish Technicals

  • First Week Effect 2012.
  • Recent fearful VIX trifecta signal as SP-500 tests key 1343 – 1371 zone.
  • FTD signal.
  • Transports (IYT) playing “green catch-up?”
  • Bull’s cup-shaped corrective base for SP-500.

Bearish Technicals

  • Fibonacci-based butterfly into 1400 potentially completes.
  • “Early and truly Best Six” period from October lows in place.
  • SP-500 double top to confirm bearish fly into seasonal Worst Six period.

RADAR WATCH

Shares of SodaStream (SODA) are off about 7.50% in early Thursday trade due to a pseudo sympathy reaction to Green Mountain Coffee (GMCR). What do they have in common? A lot more than some might think and which we’ll discuss in an on-tap Strategy Snapshot column. For now, we’re adding the name to the Bears Radar as shares break slightly below lateral support in front of next week’s corporate confessional.

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

Company

Symbol

 Sector

Earn.

Tracked

  Pattern

Strategy

Molycorp

(MCP)

Metals

5.10

7.27

Weekly Up

D-Collar

Cheniere

(LNG)

Nat Gas

May

4.5.12

First Base

D-Collar

Table 1: Bull Watch list

Non-Directional

Company

Symbol

Sector

Earn.

Tracked

Strategy

Silver ETF

(SLV)

Silver

NA

12.21

Long Strangle

Table 2: Basing Watch list

The Bears

Company

Symbol

Sector

Earn.

Tracked

  Pattern

Strategy

SP-500

(SPY)

Market

NA

3.22

Butterfly

Adjusted OTM Put

Caterpillar

(CAT)

Machines

4.25

3.29

Double Top

OTM Put

Soda

Stream

(SODA)

Retail

5.9

5.3

Lateral B/D

OTM Bear Put Vert

Table 3: Bear Watch list

 

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
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. 

 



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