After making fresh all-time highs last week, markets are taking a bit of a breather today. Price action was fairly volatile near the open, but has since simmered into a narrow range. Newsflow over the weekend was very light, and it appears that stocks are taking some time to digest the big move we saw last week. Markets are trading near breakeven on the day, but technology is the big leader today as AAPL is significantly higher. The Nasdaq is up by about 0.3% for the session. Bonds are slightly lower, down about 0.3%, while gold and silver are slightly higher. There is some significant movement in select momentum names, as NFLX, TSLA, SCTY, and FSLR are all seeing big moves despite the lack of volatility in broad-market indexes.
CHART OF THE DAY
Transocean (RIG) – The offshore drilling concern has been weak since making a significant move early this year. In fact, RIG has retraced the entire 30% rally and is now near a year-to-date breakeven level. This key technical area could provide a springboard for a big move in either direction. Short interest on RIG has recently spiked to fresh two-year highs–this greatly increases the potential for volatility going forward. RIG is slated to report earnings at the beginning of November, and the results of this report could lead to a big move by the stock. Lastly, options on RIG are currently very cheap, as they’re currently priced in the bottom fifth of all readings taken over the past 52 weeks.
I like buying a December 46-strike straddle here for about $3.80. Subscribers to Schaeffer’s Volatility Trader received this recommendation earlier today. This trade will profit on a move above $49.80 or below $42.20 by December 20.
WHAT I’M EXPECTING
The S&P 500 has come very close to the 1750 level today and Friday. This is an area that I think could cause a speed bump or two in the near term. I would look for a slight pullback in the index(albeit above the 1700 level) before a rally into the end of the year. Given recent fund underperformance, it’s likely that we’ll see a performance chase into 2014.