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MARKET ANALYSIS
A continued fearful tale of economic calamity turns technical tail in volatile testing Wednesday. For the three day period the SP-500 (SPY) is off -2.47% and below more of those closely-played support levels but looking cleansed of some prior bull for the time being.
Key highlights for bulls getting played by the market:
- Debt ceiling legislation passes through Congress.
- S&P and Moody’s both reaffirm US’ “AAA” rating.
- ADP’s slightly better-than-expected increase in private payrolls.
- Technical washout in fearful volatile trade (see below).
Key highlights for bulls not handling the market constructively:
- Weak ISM manufacturing and service readings.
- Tight-fisted consumer spending drop has bulls moaning over sluggish economy.
- Panicked flight to safety in treasuries (TLT).
Market Outlook
click to enlarge
Figure 1: ProShares SP-500 (SSO) Daily
Good luck in figuring out which of those (always) after the fact support levels was responsible for turning around the broader market at its intraday nadir Wednesday and ultimately establishing a low for one heck of a volatile hammer reversal.
The fact is no clear level in the majors was saved today. The Naz’ (QQQ) held above its March and April lows but blasted cleanly through 200SMA support intraday. The Dow (DIA) sank through its June low but held above its singular March bottom before swinging markedly higher. And our typically followed SP-500 (SPY), along with the Russell 2000 (IWM), managed a clean breakdown of its March / April double bottom before reversing handily to the upside and into positive territory.
Traders can blame the ‘borgs. More important, the price action is what it is. Clean tests and easy to spot technical levels which will systematically arouse bulls into action that’s worthy of making the pages of Edwards & McGee seems all too quaint in a market dominated by sophisticated, moneyed black box algo’s run by Quants. The opinion is those days of picture perfect lows and classic patterns working like clockwork are mostly long gone; unless you see one after the fact, and which only reinforces idealized conditions that rarely work that way.
In the here and very volatile now of Wednesday afternoon, the market has a low following a steep correction that’s worthy of a continued percentage bounce on anticipated bargain hunting; while still remaining steeped in a downtrend. It’s the type of action which could ultimately lead to a more durable bottom. First things first though and that's investors coming in to neutralize an extremely oversold market.
Confirming a playable low, last Friday’s four month and fearful stretched highs triggered in the VIX ($VIX) relative to its 10SMA continue to substantiate higher prices in the indices. Our view on this subject remains a bit more optimistic than other analysts I’ve come across the past couple sessions screaming for a test of 30% or even 50% in the VIX.
We’ll see who’s right in time, but in the end what matters more in the department of risk management and profitability are using options and strategies like the one detailed in last night’s Trader’s Radar “SPY’ing a Bull Vertical” rather than looking too keenly at the meaning behind every candle.
MARKET LAB
Bullish Technicals
- Third Year Presidential cycle.
- First Week Effect.
- Fearful “stretch” readings and four month highs in VIX with deep corrective testing in majors.
Bearish Technicals
- 1930 Bear Market Rally repeat states EW Intl.
- 10-Yr. anniversary mark of ATH top in broader market.
- “Worst Six” calendar after historic run.
- EW5 Top in SSO.
RADAR WATCH
For those traders inclined to handle the market with well-formed handles of yore, Microsoft (MSFT) has been displaying classic and constructive-looking bullish pattern development, as well as relative strength over the past several sessions. For the past six months shares have been putting together a corrective “W” or double bottom shaped formation.
The most recent action of the past couple weeks in MSFT could be defined as a handle-on-handle pattern formed in the upper half of that base. Like minded bulls might look to Mr. Softy’s options, which all things considered trade at a fair enough price to consider an outright long call strategy.
Technically, premiums are slightly high relative to statistical and implied range values of the past couple months. In the real world though, a 20’something stock with volatility in the 20s and one sporting ultra-tight liquidity, gives this type bull a leg to stand on.
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
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Company
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Symbol
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Sector
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Earn.
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Tracked
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Pattern
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Strategy
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JDSU
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(JDSU)
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Telecom
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5.4
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4.7
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Deep Bull
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D-Collar
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Celgene
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(CELG)
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Biotech
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10.27
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7.7
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Deep Bull
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OTM Call
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|
Agriculture
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(DBA)
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Agricult.
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NA
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7.13
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Breakout
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ATM Call
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|
Molycorp
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(MCP)
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Metals
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8.11
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7.27
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Weekly Up
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D-Collar
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Microsoft
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(MSFT)
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Sftwr
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10.20
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8.3
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“W” & H
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Long Call
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Table 1: Bull Watch list
Non-Directional
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Company
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Symbol
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Sector
|
Earn.
|
Tracked
|
Strategy
|
|
NA
|
NA
|
NA
|
NA
|
NA
|
NA
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Table 2: Basing Watch list
The Bears
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Company
|
Symbol
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Sector
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Earn.
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Tracked
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Pattern
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Strategy
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|
Disney
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(DIS)
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Leisure
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8.9
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7.13
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EW4
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Long Put
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Table 3: Bear Watch list
Chris Tyler
Optionetics.com
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