MARKET ANALYSIS

Additional "complacent volatility" finds bulls adding to last week's slight bout of profit-taking to kick off the week. For the two-day period, the SP-500 (SPY) is off a still mild 2.21% and an "extended" 13-week cycle with two dojis confirming a tired looking bull.

Key highlights for buying a little something (MORE) during the two-day period:

• More than "Window(S)" (MSFT) shopping and internet browsing (AMZN) for tech giants during Q3 on Friday.
• Other well-received confessionals from Cap One (COF), RadioShack (RSH) and Whirlpool (WHR).
• Influential upgrade of Schlumberger (SLB) Monday takes Monday's early leadership reigns with oil and gas (OIH) sector.

Key highlights for schnitzeling a little during the bull still at large:

• Prevalent "profit-taking" beats and misses (GLW, VZ, BNI, SLB, BRCM and AXP) continue to give bulls run for their money.
• Confidence trade crumbles intraday Monday as dollar (UUP) jumps and Black Gold (USO) slumps-leading green shoots commodity complex lower.
• Dick Bove is back Monday with "Sell" ratings on SunTrust (^STI) and First Third (FITB).
• Whispers of S&P agency mulling banking (XLF) credit downgrade.
• Monsanto (MON) chatter of unsubstantiated Tier 1 downgrade adds to drag on material sector.
• Technical market stretch and "complacent volatility" (see below).

Market Snapshot

Figure 1: S&P500 (SPY) Weekly Cycle Completion

Kudos to this strategist's coined "complacent volatility" as it continues to thwart the directional efforts of market bulls. Since our last report, Friday's market-based "feel good" price rebuttal of Thursday's profit-taking has been countered by Monday's intraday about-face which in the span of fifteen minutes saw the majors shed two percent thereabouts and close firmly underwater.

The price action confirms quite nicely what's been described the last couple times in this column. Net, net long in the tooth market gains and still slightly elevated but complacent volatility, appears to be making for a well overdue bumpy ride for the hard bullish delta at this late stage of the game.

Looking forward and despite bulls minor grievances over the action of the last couple days, this strategist's cautious thoughts remain largely intact. Emphasis remains on protection and preservation of gains sowed from the rally.

In fact or "in opinion", until bulls give up some meaningful time and price data points that are of consequence on the weekly chart and worthy of crowd regret when buying the pullback too quickly-I'll continue to see this as a less friendly trend than the one discussed daily at CNBC.

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.
• Two-thirds of October's "positive" when September shows gains.
• SPY 105 - 105.50 = flat October and 50SMA test.

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."
• Fib Weekly cycle 13-5-13 completes 10/9. Rising wedge SPY and near O/B RSI 14.
• YTD lows in VIX.
• At 20% in VIX, market equals "complacently volatile" environment.
• Still high historical volatility spells difficult trend trading in individual names.
• Mostly long-term overbought market conditions.
• Astounding 98% of SP-500 components above 200-Day MA.
• "Extended" 13-week upswing with double weekly doji decision candles.

RADAR WATCH

They "rounded up" the bulls in Monsanto (MON) today and planted them firmly lower. Fears of a bearish analyst call that never quite materialized nonetheless took their toll on the agricultural chemicals giant. Cramer was recently negative on the name due to its "commoditized" business and made a rare public "Post It" confessional on the Aggies (MOO) and being off base with his homework regarding the group.

Technically, with shares off about 6% near 70.70 MON has confirmed an inverse handle breakdown. At approximately 4% below the bearish trigger, shares are now situated near cup lows within the three month long pattern and having broken the 200-Week SMA today-the bearish picture looks promising at Monsanto.

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.