Markets were sharply lower near the open this morning, as the overnight release of weak Chinese economic data, weak European price action, and sequestration fears were all weighing on equities. After a swift selloff near the open back to the 1500 level on the S&P 500, buyers stepped in and rallied the markets significantly higher. Currently, stocks are sitting near their highs of the day, with the Nasdaq leading, up 0.3%. The S&P 500 and Russell 2000 trail slightly, each about 0.2% higher. Despite strength in equities, the recent strength in the bond market continues, as the TLT is up about 0.3% today. Metals and miners continue to be major laggards, as they’re all down about a half percent.
CHART OF THE DAY
Louisana-Pacific Corp. (LPX) – The building products company has been on quite a tear as of late, as the equity has rallied over 10% so far in 2013 and over 150% in the past 52 weeks. After peaking near 22 a couple weeks ago, LPX has since pulled back to the 50-day moving average, a trendline that has guided it higher since June 2012, and bounced from that level. This uniform technical bounce leads me to believe that LPX is poised to take out its 52-week highs that it recently made.
Despite its extreme strength, sentiment toward LPX remains fairly skeptical. Currently, nearly 8% of the equity’s float is sold short. Short interest on the equity has been retreating sharply as housing bears are beginning to capitulate, but there are still many aligned in a bearish fashion that will need to unwind their positions. A continued trend of short covering will produce a tailwind toward the stock. I like an entry here with a stop on a close below 20.50. I would initially target a move to the 25 level, with 30 being a stretch target.
WHAT I’M EXPECTING
Continued violent chop with upside bias. It looks like no matter what fears may linger, the bulls will continue to step in and bolster the markets. That said, you must buy on weakness and sell on strength. Given the recent environment, trading in a reactive fashion and not a proactive one is a good way to vaporize an account in a hurry.