GROWTH STOCK SWING OPTION: August 14, 2007

After spotting "Three White Soldiers" in the broader indices, one "Market General" has become a casualty of still-spooked bulls and a few grizzly bears. Entering Tuesday, though, both the S&P500 () and NASDAQ Composite () remain in position to "follow-through," as slight decliners of -.01% to -.56% keep the rally attempt alive.

The broader market's first Follow-Through Day, courtesy of the Dow Industrials (), has been "reset." That, of course, is a nice euphemism for a few bulls receiving a directional axe. Friday's "reset" was spearheaded by Countrywide's () reneging on promises of financial health in Friday's out-the-gate credit scare. Further, related news that day of the SEC inquiring into the books of Wall Street's elite in an effort to uncover possible losses related to the subprime and CDO market's also shook more than just investor confidence. In fact, the CBOE Volatility Index' () first test of 30% in more than four years was a testament to risk aversion and the heavy price being paid to relieve some of that concern.

And then came the Fed for a third attempt at changing Wall Street's mood. During Friday's first half, a third injection of temporary reserves by the Central Bank, persuaded investors that sufficient liquidity and the Fed officials undivided attention towards keeping the credit market situation contained, was sufficient fuel for bargain-hunting efforts. While the buying didn't result in closing gainers for the broader market, reversal candles in conjunction with higher-low double bottom patterns in the S&P500 and Naz' some weekend worries were allayed for a few trader types.

It wasn't exactly a Merger Monday situation. However, a $16B deal by Dutch chemicals giant Akzo Nobel was in the mix. Further, the market did perform one of those early upside and out-the-gate jumps investors enjoyed with regularity not so long ago. No fresh weekend casualties on the credit front certainly helped. Also, ECM injections, better-than-expected retail sales data, Goldie () management easing concerns and stateside policymakers going along with their own regularly scheduled move to provide liquidity all acted in concert to keep bulls snapping up bargains and CNBC enjoying the moment.

Market Snapshot

Figure 1: S&P500 ETF () Daily Bottoming

Unfortunately for a few bulls, a few less of their bovine brethren became spooked in Monday's final thirty minutes on more perception than any fresh headline concerns. As such, the market's out-the-gate percentage gainers were trimmed down to the fractionally flat variety and closed near session lows. On the plus side, afternoon selling pressure was markedly. Further, entering Tuesday's session indices like the S&P500 are still in position to make good on their own FTD attempts, as the rally count stands at six days.

For bullish pattern traders, our friend PS Elliott and his Wave 4 EBOT, a "fearful" five-point broadening formation and now a higher low double bottom are in place. At the same time, so is continued volatility although Monday's technical roller coaster was the most benign ride in more than a week. Short-term and longer-term secondary signals continue to confirm those patterns, some of which are highlighted below. As such, the bias from this corner is in gear with locating some bullish opportunities, but also appreciating support-style entries in conjunction with softer Delta decisions other than the traditional "Buy, Buy, Buy!" heard elsewhere.

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

Bearish Technicals

GROWTH STOCK ANALYSIS

From the Bulls Radar, the stocks being monitored have been a much more ornery lot, mostly attributed to Friday's early plumage. The unfortunately reality is growth stocks and those sitting closer to highs than not, will become easy targets for testing more than just one's patience. Valuations and technicals during such instances like Friday's volatile first half drubbing go mostly out the window.

To some degree, a name like Bancolombia () might be appreciated by the observations considered above. The fact that the company is involved in the financial space doesn't help either. Technically though, the wide-shadowed Hammer pattern has set up an interesting reversal situation involving a move outside the daily Bollinger Band and the 50-Day SMA. "Arf7" from the O'boards has detailed some work on this type of entry in the past (Options for Beginners? I believe), while commentary from HOT SHOTS a couple months back also paid tribute. As such, I'm maintaining CIB on the list below, as both the pattern and its strength within the financial arena are teaming up for the ol' benefit of the doubt designation.

On the other hand, Metabolix () from the Bulls Radar and Agrium () from the Bears Radar are being removed to make room and tidy up the lists. Each stock incurred enough technical damage to say "No Mas" and not enough conviction on this market observer's end, to maintain the faith.

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 Coilers

Table 2: Basing Watch list

The Bears

Table 3: 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.