• Daily Game Plan – Digestion Day

    by  • July 12, 2013 1:53 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets are very quiet today, as they digest the big move up from yesterday.  Volumes are running very light across the board, as little news exists to attract new buyers or sellers at current levels.  Presently, the Russell 2000 is today’s relative leader, up by a meager 0.2% on the session.  The S&P 500, Dow, and Nasdaq are all trading near flat for the session.  Metals are pulling back slightly after yesterday’s big move higher.  Gold is lower by 0.6%, silver is off by nearly 2%, while the miners are bearing the brunt of today’s selloff–lower by 3% today.  Bonds are slightly higher, while volatility is holding yesterday’s levels.

     

    CHART OF THE DAY

    Broadcom (BRCM) – The semiconductor concern has traded in a narrow range this year, but there are some signs that it could be ready to make a big move.  If you look at the present width of the Bollinger Bands, indicators of volatility expansion and contraction, you’ll notice that the current levels(bottom pane on the chart below) are near an area that has preceded big moves in the past.  Additionally, short interest has soared by over 160% over the course of the past month.  This heightened level of bears creates an increased probability for volatility in the future.  Lastly, options on BRCM are currently priced as cheaply as they’ve been at any time over the course of the past 52 weeks.  Given that BRCM is set to report earnings on 7/23, these options could see a spike in implied volatility into that report, and BRCM could make a big move on the results.

    Subscribers to our Schaeffer’s Volatility Trader service were given this recommendation earlier today — I like buying an August 35 straddle ahead of BRCM earnings for a cost of about $2.35.  This trade will profit should BRCM close above $37.35 or below $32.65 on August 16.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Continued upside pressure toward the recent all-time highs on the S&P 500.  It’s very tough to take index longs at current levels, given the risk/reward tradeoff is very negatively slanted.  For that reason, playing individual equities from the long side is much preferred.  Next week is July options expiration and there is a good deal of economic data to be released, so we could see some volatility in the near term.

    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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