Chris Tyler
Chris Tyler

Traders embrace the more optimistic points of“BullnankeSpeak” to establish a more decisive-looking breakout in the SP-500. For the three day period the SP-500 (SPY) is up 1.37% in less taxing conditions fit to cap off one the market’s better-looking “Best Six Months” periods.
Key highlights for bulls with sights set on fresh intermediate highs:

  • Overall corporate results (DAL, UPS, MMM, ITW, WHR,ALTR, GLW, BHI, AMZN) and appreciative bullish reactions.
  • Strong better-than-forecast new home sales of 11.1% and durable goods report.
  • “BullnankeSpeak” keeps the Street appeased with no forthcoming rate hikes in next couple meetings and keeping to $600B QE2 program.
  • Seasonal favor.

Key highlights for “selling a little sumthin” back near and above prior highs:

  • Lurking (somewhere) socio/economic, oil and sovereign debt threats still in the mix and potentially disruptive.
  • “BearnankeSpeak” of stubbornly weak job growth and inflation risks.
  • Looming “Worst Six” and long in-the-tooth historic Bull Run.

Market Outlook

As written in the most recent Weekly Outlook, bulls have managed to improve upon a historic performance in carving out a nice looking grand finale for the market’s seasonally strong “Best Six Months” period. What’s next, for investors smitten with “BullnankeSpeak”, “Barackouts” and a confidently low CBOE Volatility Index ($VIX)?

There are no guarantees as to what’s next. However, it would seem after a historic rally over the last couple years, smaller equally impressive runs or waves higher, as well as the market’s “less good six” on tap; at a minimum, momentum and further strong gains will be harder to come by. In saying that, adjusting positions to be in gear with “an extended period” of less likely higher highs and less sympathetic to an extended period of flat rates sounds about right.

Bullish Technicals

  • Seasonally strong April in front of “Worst Six.”
  • Third Year Presidential cycle.
  • “First Week Effect” with gainer signaling bullish 2011.
  • Retro FTD from 3/24/11.

Bearish Technicals

  • 1930 Bear Market Rally repeat states EW Intl.
  • 10-Yr. anniversary mark of ATH top in broader market.
  • Broken weekly uptrend.
  • VIX near nominally cheap historic readings.
  • Market approaching end of “Best Six” calendar after historic run.

I’m waiting to hear some pundit, likely in hindsight, mention the weakness in the financials (XLF, BAC) as a reason to have always doubted the market’s rally of late. That logic has certainly worked in the past and Goldman (GS), our lone Bears Radar component, has been very sympathetic towards that end.

Personally, I’m not much of a fan of relative weakness in one sector, like the financials, acting as the proverbial canary in the coalmine when there are so many other variables at work.

That said and at the end of the day, adjusting into a less bearish position when conditions look their bleakest and vice versa through the judicious use of options; is typically a much better proposition than being married to “BullnankeSpeak” and plentiful “Barackouts” over the long haul.

Last week we had hoped for some new selections to the radar. Unfortunately, given a rally that I’m more inclined as seeing having already enjoyed its best couple days into the tail end of a seasonally strong period, we’ll continue to keep a tight ship below. However, shares of Rare Element have done a nice quiet and constructive job of fashioning a low for a handle consolidation or a right shoulder within a bullish inverse H&S pattern.

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
Rare Element (REE) Metals 1.27.11 W4 Pullback Dynamic Collar
JDSU (JDSU) Telecom 4.7.11 Deep W4 D-Collar

Table 1: Bull Watch list

Company Symbol Sector Earn. Tracked Strategy

Table 2: Basing Watch list
The Bears

Company Symbol Sector Earn. Tracked Pattern Strategy
Goldman (GS) Finance 4.19 3.2 H & S April Put
Table 3: Bear Watch list

Chris Tyler

Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate