Today marks the expiration of January equity options, and like many recent expiration days, the action leaves much to be desired. Volumes are light across the board, and markets are digesting yesterday’s breakouts. After some weakness this morning, buyers have stepped in to bring indexes back near their opening price levels. Presently, both the S&P 500 and Russell 2000 are flat on the day, while the Nasdaq is weak, down about 0.3%. Bonds have a decent bid, up about 0.7% despite equities being flat, and metals are up slightly.
CHART OF THE DAY
Hovanian Enterprises (HOV) – Homebuilders have been extremely strong over the past year, and HOV is no exception. Since the beginning of 2012, HOV is up a whopping 330%. Even though the stock has been an absolute monster, there have yet to be any signs of optimism creeping in. Currently, short interest on HOV is at an all-time high. These shorts account for 36% of HOV’s float, and the total amount of short interest has increased by 29% over the past two weeks alone. These new bears could begin to feel some heat should HOV rally back above its 52-week highs, and that break could spark a whole new wave of short covering. An entry here with a stop on a close below the 50-day moving average(currently 5.76) offers a great risk/reward entry. I would initially target the 52-week highs of about 7.30 to take some profits, and the leave some exposure on for a potential longer-term run back to the 10 level.
WHAT I’M EXPECTING
Until the S&P 500 can break back below the previous highs of 1474, I expect more upward price action. There don’t appear to be any major market catalysts on the near horizon, so the present low-volatility environment should persist into the forseeable future. Next week is only a four-day trading week, as markets are closed Monday in observance of Martin Luther King Day. There is little economic data to be released as well. Opportunities do still exist in individual names, however. Enjoy the long weekend, and be sure to only take your best setups next week. Overtrading in this environment is a surefire way to vaporize an account in a hurry.