MARKET ANALYSIS

A frightful end to October finds investors test driving a bull in volatile conditions Monday. For the two-day period, the SP-500 (SPY) is down 2.18% but still disconnected from other clunky looking markets.

Key highlights for buying a little "MOOyah!" during the two day "Monbacky!":

• VIX Stretch signal and price surge on Friday though historically feared 30% level. Correction of 6% in SP-500 through MA supports.
• Trifecta of easier to cheer "b-t-e" data from ISM, pending home sales and construction spending on Monday.
• Ford (F) surprise profit and sales beat finds bulls test driving shares.
• Easing of Dollar carry trade as UUP trades mostly sideways.

Key highlights for schnitzeling a little during the "BOOyah!" off weekly highs:

• Friday unwind of US Dollar (UUP) carry trade and associated rotation out of riskier and tied at the hip assets.Corporate beats (KLAC and CVX) by and large continue to receive less sympathetic treatment / cheer from investors. CIT (CIT) enters bankruptcy proceedings after failing to secure financing. Larger technical outlook.

Market Snapshot

Figure 1: S&P500 (SPY) Weekly Corrective Top

After two more sessions of lower lows, oodles of intraday volatility, fear spiking on the VIX in more way than one and a doji finish for the SP-500 Monday afternoon, bulls looking for a playable bounce are piling up additional evidence. However, as noted in the Weekly Outlook, this market strategist still wouldn't bother chasing the action.

The concern is bulls wishing to snap up bargains are bucking a corrective shift in price and bearish sentiment that isn't going to be so easily erased as in other instances of fast money anguish over the past several months. That point is brought home when we look above and realize how far below those prior lapses of judgment are relative to our current 6% corrective move.

Additionally, with the SPY essentially where it was four sessions ago, but unable to get successfully back through the 50-SMA or above the overhead of the 20-SMA, a previously oversold situation is losing traction. As much, while the daily doji candle marks plenty of price turns, it might be remembered it represents more of a neutral decision point than anything else.

The one technical nicety that I'd offer up to aspiring bulls is the follow-through day or FTD count. Monday's lower lows and positive finish established day one of the count. As a general rule days four through seven, if the lows remain intact, represent a window to monitor for a bullish shift in price and volume.

Should a high volume thrust occur during that period, a FTD would signal. For many intermediate-minded growth bulls, the event is a starting place with which to begin considering, once more, optimistic and positively-charged position initiations.

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.
• Oversold conditions. VIX Stretch signal > 15% and plus 30% reading.
• Doji low off Bollinger as tight technical stop for potential "Monbacky!" plays.
• Day 1 of FTD count per outfits like IBD.

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." Green Shoots priced in.
• Mostly long-term overbought market conditions.
• Confirmed "Extended" 13-week topping as part of 13-5-15 cycle.
• Q3 "Recession is over" data confirmation.
• SPY resistance 105.50 - 107.30
• Oversold begets more oversold after historic rally.
• Estimated minimum corrective support zone 99.50 - 102 testing.
• Three days of consolidation work with doji eases cries of "Oversold!"

RADAR WATCH

The short candidates in the Bears Radar are holding their own and in part, helping make the case that there's still more "red chutes" in store for the market. A lot can happen between now and the next time an update for this column is officially provided. Between the possibility of a slippery oversold slope or a bullish FTD occurring, it seems directional traders should be facing some strong opportunities, albeit laced with bouts of hard intraday volatility. I'll do my best to keep readers abreast of any changes, good or bad, in my midday updates, other various writing commitments and possibly the boards at Optionetics as well.

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.