GROWTH STOCK SWING OPTION, August 24

Decent reports and easing worries inspire higher highs and strong percentage gains for two of the last three sessions. However, Thursday’s ode to mixed news and fresh credit concerns have an unobstructed rally finds its first mild taste of profit-taking. For the three-day period the S&P500 () and NASDAQ 100 () are up 1.30% to 2.15%.

On Tuesday, Treasury Secretary Paulsen stated, “There’s not going to be a quick solution to some of the issues in the credit markets.” However, with the interview coming to us courtesy of CNBC, investors appeared to have collectively muted the volume. In truth, though, reports earlier this week were generally good or at least inspiring in the scheme of things.

For the bulls, Warren Buffett was reported to be eyeing parts of Countrywide’s () business. Capital One () issued a mixed report, but management’s decision to close its mortgage unit was well-received by investors. Target () issued an in-line earnings report easing some concern that the consumer was doing more dropping than shopping. An upgrade by Goldie to “Buy” the next day and two analyst nods for fellow “credit victim” Lowes () saw traders taking out their wallets. The former market star known as “PE” wasn’t back, but a trifecta of M & A reports out of Nymex (), MGM Mirage () and brokers Ameritrade () and E*Trade () were in the spotlight helping to lift investor sentiment amongst other things.

Thursday started off as another day of easing worries and rising prices. A report of

“BofA” () injecting $2 billion into non-voting preferred (and very desirable) stock into Countrywide () for a yield of 7.25% and conversion discount 17.50% or $18-a-share was more than cheered by other investors, making that company’s vote of confidence in the credit arena look all the more attractive.

Unfortunately, with investors apparently tuning and listening in (this time) to an exclusive CNBC interview with the head of the beleaguered lender, some necessary profit-taking, albeit ultra light, was administered. Words of caution that the market environment was “certainly not getting better” and one which could result in the “R” word i.e. recession, weren’t exactly what the bulls wanted to hear. Additionally, fresh news of Home Depot’s () already wobbly building supply unit sale becoming less likely due to financing problems and Moody’s review of and possible downgrades in a handful of the nation’s builders helped set the slightly more tempered tone for the remainder of the session.   

Market Snapshot

Figure 1: S&P500 ETF () Daily

Entering Friday’s session in the premarket and futures are flat as day number seven of the S&P500’s () “Follow-Through Day” count is celebrated or perhaps fretted over. The ideal time window for this bullish technical event is from the fourth to seventh day after a rally attempt low. If it doesn’t occur in a timely fashion it doesn’t imply something akin to “Sell Mortimer Sell!!” And in fact, the other major indices all officially have through Monday to provide a signal within the fore mentioned regularly scheduled program for bulls.

More to the point for this market observer, with prices handily higher over the period and on mostly waning and seasonally expected lethargy; profit-taking is somewhat expected at this juncture. It’s true the extremes witnessed off corrective lows were the most severe witnessed in more than four years time. Due to that, I’d like to anticipate that a meaningful low has been established. However, with prices in proxies such as the SPY now 7.5% or more above those lows, the VIX off a whooping 41% from its recent highs, a market still “under correction” per IBD, and oodles of technical resistance and lower highs, should traders wish to see the glass as only half empty: at a minimum schnitzeling and / or adjusting those bullishly inspired Deltas makes more than enough sense heading into the weekend.

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

Over the last couple of sessions most of the stocks from the lists below have been in consolidation mode and bound by their existing daily and weekly patterns. KBR Inc () has been the most benevolent mover off its undercut double bottom pattern. For breakout strategists, though, the stock remains in the right side of its base. As such it will remain on the list, as it’s viewed as being bullishly positioned overall. For purists, an extra two days of consolidation could be defined as a handle and potential spot for continuation entries.

Fossil () has been a decent performer too, as fresh multi-year highs from an unorthodox handle have ensued. Personally, if traders have charts that can produce two-week candles, that’s likely the best view for visualizing the pattern as part of a near three-year cup with handle. Since the price remains only 5% above the pivot of 32.07, this one too is still considered “in position” for longer-term strategists and remains on the Bulls Radar.

Elsewhere, the “pin action” in Immucor () has turned red the last couple of sessions. However, as a confirmed daily chart handle breakout with matching fundamentals, it’s being given the benefit of the doubt. For this market observer that translates into intermediate-based appreciation of 8% from the pivot of 33.92 or a break below 31.20, before it’s removed from the monitor.

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.