This morning looked eerily similar to yesterday, as many momentum names were hit very hard on the open and major indexes stepped lower until lunch time. However, buyers stepped in today and have pushed stocks back to the highs of the day ahead of the 2:00 FOMC minutes. There are still pockets of weakness underneath the surface, but today’s bounce near the 1650 level on the S&P 500 has to be a comforting sign for bulls. Markets are being led today by the Dow, which is higher by about 0.3% amid strength in high-yielding names. The laggard for the session is again technology, as the Nasdaq is trading about 0.2% lower for the session. Bonds are lower by about 0.6%, while gold is well off the lows, but still lower by about a percent.
CHART OF THE DAY
Valero Energy Corp (VLO) – Shares of the refiner have been sliding as of late, but there are signs that a tradable bottom may be in place. VLO recently pulled back to the 34 level, which was the highs seen in 2012. Additionally, this level coincides with VLO’s year-to-date brekeven level. This could add an additional layer of support. Lastly, the 34-strike is site of massive put open interest in the October options’ series. Heading into next Friday’s expiration, this level could hold firmly, as those short the bearish options have an incentive to keep the stock propped up through then.
I like a long entry here with a stop on a close below 33. I would initially target a move to 36, with 40 as a stretch target.
WHAT I’M EXPECTING
1650 appears to be support for the time being, so I would look for a short-term bounce on indexes. Overhead, the 1680 level, site of the now descending 50-day moving average, is the hurdle for bulls to overtake.