Chris Tyler, Optionetics.com
April 7, 2011

MARKET ANALYSIS

A batch of indecisive dojis in and around a “devilish” double hints strongly at technical closure on the way. For the three day period the SP-500 (SPY) is up a maddening 0.23% but in stark contrast to March’s brand of more volatile madness.

Key highlights for bulls with sights set on fresh highs:

•Diminished socio/economic, oil and sovereign debt threats from overseas.
•Texas Instrument’s (TXN) $6.5B / 74% premium bid for Nat Semi (NSM).
•Vivendi’s $11.3B / 44% claim of SFR from Vodafone (VOD).
•Seasonal / technical jockeying favors bulls.
•Cisco’s (CSCO) internal “we messed up” memo receives bullish interpretation of better days ahead as bulls send shares up nearly 5.0%.
•Pair of upgrades for Broadcom (BRCM) assists semis (SMH) to recapture 50SMA.
Key highlights for “selling a little sumthin for sumthin more” near prior highs:
•Background socio/economic, oil and sovereign debt threats from Japan, Middle East and Europe still lurking and potentially disruptive.•SIA reports -1.1% sales drop for February in semis.•Mixed to far from great economic reports (European PMI & GDP, China PMI, ISM Services) throughout week.•China raises lending rate by 25bps sending bulls into typical “growth derailment” tizzy.•Bad Apple (AAPL) rebalancing in Naz’ 100 as “i-Gadget” goes from 20% to pending 12% weighting.•Fed Minutes suggest fresh attention to inflation and dissent regarding QE2.Market Outlook

As we noted most recently in the Weekly Outlook, one man’s cup or V-shaped base is another’s double top. That still stands to be very much true as of Wednesday’s close. The SP-500, much to the chagrin of bulls and bears hoping for their respective pattern to come into fruition, have had to endure three ingratiatingly tight days of indecisive doji candlesticks benefitting mostly the option-based hedge hog.

Entering Thursday, a technical resolution from the market’s indecisive ways should be very close at hand. However, in appreciating other contradictory adages such as all trends must come to an end or trends can persist longer than a trader’s wallet betting against it; the best option remains, in one strategist’s opinion, keeping the bull and bear at arm’s length by plying those softer delta strategies.

MARKET LAB

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.•Cup or V-shaped base for SP-500 and neutral VIX Stretch.Bearish Technicals

•1930 Bear Market Rally repeat states EW Intl.
•10-Yr. anniversary mark of ATH top in broader market.•Trend persistence physics.•Two Year “Devilish Double” Anniversary in SP-500 from March 2009 bottom.•Broken weekly uptrend and possible double topping.•VIX near nominally cheap historic readings.RADAR WATCH

Cisco (CSCO) has been removed from our Bears Radar after a fairly nice run and what should have been a profitable ride to the downside for bears. Following Wednesday’s bullish price jump though, a counter-trend cycle looks to be in effect. The change in character isn’t something we’d personally wish to sit through as a bear; particularly so if any potential profit adjustments hadn’t yet been made. Wednesday’s Trader’s Radar piece “What’s Up With Cisco” does a nice job of further detailing those matters without being repetitive.

Another recent article this week, “Just Don’t Short Us” is the basis for adding JDS Uniphase (JDSU) to the Bulls Radar. This strategist likes the erstwhile fiber / telecom outfit as a softer delta collar candidate due to its decent volatile swings and tight markets. The belief is the name could be an interesting candidate for accumulating shares on weakness, but without busting the bank in case the bears make the case for shares going back into hibernation despite holding a longer-term, more optimistic view.

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

Company
Symbol
Sector
Earn.
Tracked

Pattern
Strategy

Netlogic
(NETL)
Semis
2.2
1.5.11
C-w-H
Bull Vert

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

Non-Directional

Company
Symbol
Sector
Earn.
Tracked
Strategy

NA
NA
NA
NA
NA
NA

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
Optionetics.com ~ Your Options Education Site