• Daily Game Plan – Big Week Ahead

    by  • January 28, 2013 2:18 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets are near breakeven ahead of this week’s onslaught of critical data releases, as the S&P 500 continues to churn around the key 1500 level.  Stocks were met with responsive selling near the open, and indexes sold off significantly during the week’s first half hour of trading.  However, as we’ve seen numerous times over the past few weeks, buyers stepped in near mid-day, and the early weakness has faded.  Currently, the Nasdaq is leading, up 0.2% amid strength by Apple Computer (AAPL), while the S&P 500 is a relative laggard, down 0.2%.  Bonds and metals are again weak, down between 0.5 and 1%.

    One interesting metric to monitor this week is volatility.  VIX, the most widely-accepted measure of fear, spiked significantly today, up 6%.  The index has a tendency to gap higher on Mondays, but today’s move is larger than normal.  Keep a close eye on the 14 level, which was support for most of the year.  A break back above there could be a sign to de-risk for the short term.

     

    CHART OF THE DAY

    SunPower Corp (SPWR) – While I’m not a big fan of solar names on a longer-term basis, the technical and sentiment backdrop here look appealing for a trade from the long side.  SPWR has been very strong so far this year, up 41% on the heels of positive news developments over the past few weeks.  Since then, the shares have consolidated nicely, and are in a tight bull flag formation.

    What I particularly like about this setup is the growing skepticism despite is incredibly strong price action thus far in 2013.  Despite its strength, short interest is up over 40% so far this year, and currently sits at 16% of SPWR’s float.  The glut of new bearish positions could create a scenario where shorts could get trapped, sparking another big rally similar to that seen during the first week of January.  Additionally, analysts are very skeptical toward SWPR, with on 2 “buy” ratings versus 8 “holds” and 5 “sells.”  Further developments in the solar space could cause these analysts to change their negative tune, and this could act as a tailwind toward SPWR.  I like an entry here with a stop on a close below 7.50.  I’d initially target a move to 9, with 12 being a stretch target.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Given the massive amount of information set to be revealed this week, I’d look for a day or two of consolidation, and then an outsized move between Wednesday and Friday.  There are a ton of critical earnings reports this week, many of which should shed some more light on the global macro situation. Keep a close eye on the reactions to the data, where a weak tape amid strong numbers(and vice-versa), could be a sign of markets diverging from economics. Despite signs of growing bullish sentiment, it appears that the path of least resistance is still higher.

    About

    Bryan Sapp is a Senior Trading Analyst at Schaeffer’s Investment Research, where he has specialized in volatility-based options trading since early 2010. With Bryan at the helm, Schaeffer’s Volatility Trader generated a 2012 portfolio return of 70% for subscribers. This real-time option recommendation service exclusively trades short-term straddles. Prior to joining the research team at Schaeffer’s, Bryan honed his skills as a speculator by trading his own account, and playing poker professionally to pay his way through college. Bryan attended the University of Louisville, where he received his Bachelors in Economics and an MBA with an Entrepreneurship focus.

    http://www.schaeffersresearch.com/

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