After a fairly volatile overnight futures session, markets are quiet today ahead of the three-day weekend. The one bit of news for the day was a slight miss on the Chicago PMI data, but equities shrugged off that bad news and rallied back near 52-week highs. It appears many traders have taken the day off, as volumes are very light and price action is muted. However, the beat goes on and we continue to grind higher. Currently, the Dow and S&P 500 are leading markets, each up 0.2%, while the Nasdaq and Russell 2000 are both trading near breakeven. Bonds are slightly lower on the day, while metals and miners are off about 1%.
CHART OF THE DAY
Bank of America (BAC) – The banking behemoth is setting up nicely here after filling its gap higher from 3/14. After leading markets for some time, financials have taken a breather as of late. However, it appears that they could be setting up for another leg higher.
Despite its strength, sentiment in the options market has been extremely bearish as of late. In fact, the Schaeffer’s Open Interest Put/Call Ratio (SOIR) is currently in the 98th percentile of all readings taken during the past 52 weeks, indicating extreme pessimism. Should BAC continue its grind higher, this creates the potential for an unwinding of these bearish bets, which would drive the shares higher. I like an entry here with a stop on a close below 12. I would initially target a move to 13, with 15 as a stretch target.
WHAT I’M EXPECTING
Muted markets into the close, and then the potential for a decent gap on Monday. The lack of action tomorrow, coupled with a long weekend that could be newsworthy, leads me to believe we could see something big next week. In trading this market, all you can do is take long and short setups that look appealing, and then manage risk.