MARKET ANALYSIS

A rally attempt is underway, but with the market under correction and price volatility still prevalent, the edge goes to the hedge hog entering Friday's session. For the past three sessions the S&P500 ($SPX) and NASDAQ Composite ($COMPQ) are each higher by approximately 2%, but those gains are more cosmetic until proven otherwise.

Turnaround Tuesday and confirmation that a rally attempt is underway had further help from risk-averse investors turning a bit less so. Much of the continued relief or potential bear market rally was attributed to easing concerns over the Yen carry trade, stabilization / strength of overseas markets and what had been a severely short-term oversold condition. Reversal strategists certainly had a few legitimate technical reasons to participate off ‘the bottom.' However, there remain plenty of negative catalysts and damage inflicted upon the market to warrant tapering the enthusiasm for a bounce from the pavement, as it's now fast approaching resistance.

Factors such as oil remaining bid above $61-a-barrel and its potential impact on consumers and businesses alike, is always a likely candidate for weighing in on positive sentiment now apparent. Further, while investors become sufficiently numb to the ongoing woes surrounding the sub and prime (NEW, MTG, FMT, FBR, WM, CFC, NFI, JPM, BAC) group, if the situation escalates into a larger problem, risk aversion towards the broader market is a likely outcome. Housing anyone? DR Horton's (DHI) CEO came out Wednesday night and offered investors "…is going to suck, all 12 months" bit of candor. While a very tepid ‘buy the news' reaction might be appreciated by the bulls, it's another soft spot that still merits watching closely.
Market Snapshot

Figure 1: S&P500 ($SPX) Daily

The proof that many investors are looking for continues to be the follow-through day, written extensively about in this column's last two reports. That day, marked by a higher volume percentage thrust could come as soon as Friday's session. The early premarket reaction to the jobs data is attempting to trigger that green light of sorts. However, the estimated gap higher of about .50% is still well-short of that goal. Further, as written about more recently in Thursday's HOT SHOTS, leading stocks in constructive bases, as well as successful breakouts confirming a shift away from a market under correction needs to be apparent.

For this trader, market neutral ideas and possibly an attempt at shorting resistance appear in order as we enter the session. With Thursday's gap higher, a second gap and thrust (Friday potentially) would put conditions cleanly into overbought territory, as well as an awareness zone of resistance shown in the chart above. While a FTD would be accepted as a reason to be more bullish, the existing "V" bottom and current technical placement of the FTD event, suggest initiating fresh longs on day one of the FTD won't be prudent.

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

• January Effect positive finish
• Correction underway with -3.5% to -6.7% tallies in both majors
• Extreme readings such as record breaking VIX percentage spike and NYSE TRIN
• Friday marks potential FTD for intermediate trend reversal

Bearish Technicals

• ‘extended' 4 / 20-year bearish cycle convergence
• No FTD signal yet and market's near or at short-term overbought / resistance
• Potential overhead resistance and three months worth of traders looking to ‘breakeven'
• Corrective periods up to 10%
• CBOE Volatility Index ($VIX) near weekly supports / corrected pullback

GROWTH STOCK ANALYSIS

There have been a few nips and tucks to the lists below as higher market prices have made the existing Bulls and Bears Screens somewhat stale. Not overly so, but some pruning, as well as additions from Thursday's HOT SHOTS report have been made in an attempt to keep the lists current, in a very volatile environment.

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

The Bears

Table 2: 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.