GROWTH STOCK SWING OPTION: August 28, 2007

MARKET ANALYSIS

An extra session of unobstructed gains and further subsequent bullish relief has encountered a bit of the inevitable. With futures pointed slightly lower, a little more schnitzeling from the latest top is setting up Tuesday’s early program. For the two-day period, the S&P500 () and NASDAQ 100 () are up .29% to .74% on lighter volume and still generously removed from recent corrective lows.

For the bulls, stronger-than-expected durable goods and new home sales data were bid appreciably, marking a sixth straight session of higher highs in the Naz’ 100 possible this past Friday. Translated another way, with gains of 8.7% for the Bovinus Optimus’, the CBOE Volatility Index () crashing some 45% from multi-year highs into a technical floor and a market still defined by a corrective situation in certain circles; Monday’s retort needed little in the way of headline-driven excuses.

If investors were looking for a sell-side catalyst other than the technical, tepid inside-bar decliners of .66% to .93% were mostly attributed to Home Depot () confirming its building supply unit sale for an 18% price schnitzel. While shares of the retail giant ended the day 1.64% higher, Wall Street took the report as a sign of general deterioration for financing of prior excesses. Additionally, with many previous celebrated corporate handshakes still waiting on word from their friendly “Anchor Banker”, the Herd on The Street opted for a little bit of worry and an equally small bout of well deserved profit taking.

Market Snapshot

Figure 1: S&P500 ETF () Daily

A combination of renewed global credit concerns and a couple of “Anchor Bankers” receiving downgrades (BSC, LEH and C) and the more likely, technical-inspired reasons posted in the chart above have Tuesday’s out-the-gate bias pointed lower.

It could be a lot worse for a market still under correction, as defined by the likes of IBD, as well as other technicians seeing the development of a third lower high. And in fact, one and one-half weeks back, conditions were much harsher. As observed by this corner, hard percentage gainers have at a minimum provided some very strong financial relief, which in of itself are reasons for many traders too lighten portfolios. With the VIX having dropped precipitously from near panic levels of 37.50% to a more confident floor nearing 20% that idea is only confirmed.

A bullish seasonal bias and end-of-month window dressing could of course, still come into play. However, as most traders are all too well aware of in the current environment, being slow of foot or hand can be a costly endeavor. Further, sentiment shifts between rapture and panic and volatility may find a potential ally in the form of lighter crowd participation in closing out those dog days of summer.

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

For the IBD set, the search for a market-based Follow-Through Day has missed its ideal window as of Monday’s close. In consideration of the percentage gains already in place, that’s not considered such a bad thing. In fact, with many leading stocks having done just that over the same period, a couple of sessions of lighter backing and filling could set up a stronger-positioned, albeit “late” cheer from those intermediate-based growth strategists.

In the interim and for those traders willing to enter directionally from both the buy and sell side, opportunities are likely to present themselves outside of the classic breakout situation. At a minimum, the last couple of days has been and continues to be, opportune for reducing bullish deltas in the most general sense. The observation from this strategist is Wave 4 entries and similar pullback style forays will possibly make better opportunities once some supports are tested in the broader market. Should a “FTD” occur thereafter, then more traditional breakout plays would likely find themselves a beneficiary of that market pin action. And for the more aggressive-minded, well not really, maybe some of those lower high patterns have prompted the Ursa Major into action, while a more measured risk-to-reward situation is still available in a market still under correction.

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.