Long Options for a Market Follow Through

On our sister blog we’ve laid out our case for further downside in the markets, but there clearly exists the potential for a resumption of the market’s uptrend should the indices post an outsized high volume gain. Good traders need to be prepared with options should the market flout our expectations.

We do not feel the market is sufficiently overbought to recommend swing short positions with the potential for significant gains.

However should the long side prevail a number of stocks have built solid foundations for extended upside.

Dendreon (DNDN) is in a double bottom base with Shake Out Plus Three entry at current price levels. It needs to show at least 5 MM shares of trading for us to consider entry, however, and volume has been conspicuously absent on its recent rise.

Perfect World (PWRD) is also at an inflection point. Price has carved a Cup With Handle base. Friday it rose above the downtrend line connecting the highs of the pattern but as with DNDN volume was lacking. We’d need to see a pace of nearly 2 MM shares to draw our commitment on a strong market day.

Finally Apple (AAPL), which we have often described as the institutional bellwether of the current uptrend, is lifting off its first of the 50 MA since July. We do not care for the volume pattern, with heavy volume on the downside and light volume on the current advance, but AAPL has defied unattractive volume profiles throughout this rally and mounted a most impressive advance.

You will notice a consistent objection we have to all of the patterns above. It is the same objection we expressed in our Market Commentary blog about the general indices. Upside volume is lacking. Unless and until it appears traders with any but the shortest of time horizons belong on the sidelines, waiting for better opportunities.