• Daily Game Plan – Calm Before the Storm

    by  • December 28, 2012 2:19 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets continue to trade in a range ahead of the all-important weekend meetings regarding the upcoming fiscal cliff.  At current levels, equities are slightly lower, with the S&P leading the charge, down 0.5%.  Bonds are slightly higher and commodities are mostly lower.  At this point, everything seems “on hold.”  Volumes remain very light,  and most of the recent price action has been very “noisy.”

    One asset to monitor going forward are lumber futures.  Lumber is considered by many to be a primary leading indicator of the health of the housing market, and its recent strength shouldn’t go unnoticed.  The commodity has gone parabolic as of late, and currently sits at six-year highs.  Given that housing was the primary cause of the market bubble in 2008, its health holds major implications for equities going forward.  Keep a close eye on these futures, as well as XHB, the ETF for homebuilding stocks.

     

    CHART OF THE DAY

    Citigroup (C) – Financials have been the leading sector in 2012, and the chart below suggests that there’s more upside to come.  Below is a weekly chart of C, where you’ll notice a nice cup and handle formation.  These patters can often indicate trend reversals, and the chart below suggests there’s more upside for C.  After breaking higher and testing the 40 level, C has pulled back near previous resistance from earlier this year near the 38 level.  In addition to this, total short interest on C has risen by 77% over the past month.  Strength in early January could cause these new bears to capitulate, and that could add fuel to the fire.  A long entry here with a target of 45 and a stop below 37.50 looks like a nice setup for a January trade.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Price volatility next week(obviously).  The fiscal cliff vote is scheduled to take place on Sunday night, Monday is the last trading day of the year, and many market participants that have been on vacation will likely return to work next week.  Volume should pick up amid heavy news flow, and hopefully we’ll get some resolution of this recent choppy range.  I maintain a long bias, but a break of 1385 on the S&P 500 would lead me to reconsider.

     

     

    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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