After gapping slightly higher on the open this morning, markets have moved sideways in a tight range. Without much news overnight and mixed earnings action today, stocks are lacking a catalyst today for a big move. Price continues to be accepted near the top of yesterday’s range, and assuming the current market levels hold, that looks to be a good sign for the bulls.
At present levels, the Rusell 2000 is today’s relative strength winner, up 0.2% on the day. The S&P 500 is trading near breakeven, while the Nasdaq and Dow are slightly lower. Bonds are up only slightly, while metals are mixed. The big winners in today’s action are the gold miners, up nearly 4% for the session.
CHART OF THE DAY
Smithfield Foods (SFD) – The fresh and package meat producer has been strong as of late, up about 20% year-to-date and over 40% since bottoming last August. The shares recently spiked significantly higher on news that the company would be split into separate functional units, and have since consolidated near their 40-day moving average.
Despite its recent strength, sentiment toward SFD remains skeptical. Short interest remains fairly elevated, at 7% of the stock’s float. Continued strength could spark short-covering rallies going forward. Additionally, sentiment in the options markets is reaching a bearish extreme, which creates the potential for an options-related unwind. Given the strong price action amid skepticism, this looks like a nice contrarian long play. I like an entry here, and would stop out of the trade on a close below 24.50. I would initially target a move to 27.50, with 30 as a stretch target.
WHAT I’M EXPECTING
I continue to believe the 1575 level will tell the tale. Presently, it appears that the market will close above there, so my lean is bullish and I look for a retest of the April highs. If the S&P 500 can break and close significantly below that level, I would lean bearishly. However, until we get a significant break in either direction, there isn’t much edge in picking direction.