MARKET ANALYSIS

Since our last report price volatility has picked up a notch, but the bulls still find themselves on top in front of Friday's session. For the three day period the SP-500 (SPY) is off by a very mild 0.46% with "Dow 10K!" secured once more but "SP-1100" still weighing in on bulls.

Key highlights for buying a little something (MORE) during the three day period:

• Confidence trade continues with ever-slumping dollar (UUP) and breakout in oil (USO) holding the high ground with bulls.
• Crowd cheer for corporate (AAPL, CAT, UNH, MS, YHOO, USB, STT, TRV, MMM, GR) confessionals.
• Jolly good rate hike talk from England on Wednesday helps first half market booster to fresh highs.
• "Buy the dip" reaction Thursday.

Key highlights for schnitzeling a little during the bull still at large:

• Prevalent "profit-taking" beats and misses (AMGN, BG, CTXS, NUE, EBAY) continue to give bulls run for their money.
• Wednesday's last minute thumper due to Dick Bove comments on Wells (WFC), canary of weak Goldie (GS) action per Fast Money or slow money delayed reaction to weak beige book.
• Weak housing data from starts and permits, PPI, and weekly claims.
• VIX hits key 20% level and SP-1100.
• Technical market stretch (see below).

Market Snapshot

Figure 1: S&P500 (SPY) Weekly Cycle Completion

Well, the last two days has been fun for bulls and bears. I'm kidding of course, unless as a bull you enjoy having the carpet pulled out from underneath you to the tune of more than 2% in twenty five minutes. On the other hand, umm claw, conditions have been equally challenging for bears. An engulfing reversal candle with distribution that looked to cap off an overbought rally within the market's historic seven month run was followed up by Thursday's lighter volume bout of buyers re-entering the fray.

Entering Friday, futures are pointing up but my thoughts are mostly the same and continue to emphasize caution for the long delta. It will be added my belief bulls should stand ready to go through more mini-price shockers like Wednesday's humper. At 20% in the VIX, I'd describe the market landscape as complacently volatile.

"Complacently volatile?" The contradiction of sorts is thought to make sense as market conditions are still historically volatile, but masked by the gains of the broader indices which continue to lure in late buyers. The problem, without a corrective move which last weeks or even months, traditional money management such as 7% to 8% stops outside the indices, are made much easier targets during any 1% to 2% price dramas such as Wednesday's and brought to us by "Must See TV" on CNBC.

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

• Breakout of daily / weekly downtrend from Sept 2008 highs DIA.
• Weekly Inverse H & S being breakout from October lows. "MM" of 113 - 120.
• Two-thirds of October's "positive" when September shows gains.
• VIX Stretch not in jeopardy of signal.

Bearish Technicals

• 1930 Bear Market Rally repeat and "W" pattern SPY?
• Third time the charm? Potential W5 Daily and W4 Weekly in SPY.
• At 65%, market's run has "Come a long ways, baby."
• Fib Weekly cycle 13-5-13 completes 10/9. Rising wedge SPY and near O/B RSI 14.
• YTD lows in VIX.
• At 20% in VIX, market equals "complacently volatile" environment.
• Still high historical volatility spells difficult trend trading in individual names.
• Mostly short and long-term overbought market conditions.
• Astounding 98% of SP-500 components above 200-Day MA.

RADAR WATCH

As if to emphasize the point made above and not my stock selection capabilities, both BofA (BAC) and Dendreon (DNDN), the only two watchlist candidates from the Bulls Radar, have been given the axe despite intoxicating higher highs elsewhere. BAC broke more than 7% below its "W" buy point, while DNDN has seen any potential momentum and anti-market gumption, fall to the wayside the last few sessions.

On the other hand, Intercontinental Exchange (ICE) is off the Non-Directional radar after managing to move quite nicely from its symmetrical triangle since posted two weeks ago. From the non biased pattern, an attached long strangle strategy stood to do quite well and in position to have adjusted profitability with shares gaining more than 15% at recent highs.

In the place of ICE, Yingli Green Energy (YGE) is being posted to the radar. The alternative energy name has been carving out a similar but much larger weekly symmetrical triangle which looks poised to break from the consolidation.

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
Senior 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.