Today marks the beginning of February options expiration week, and people seem less than enthused about the markets at their current levels. Volumes are very light across equity indexes, and as you would expect, there are only a handful of select names making big moves today. At current levels, markets are slightly lower, with the Russell 2000 leading the move down, off 0.4% today. The Nasdaq and S&P 500 are both currently off about 0.2%. There is a bit of volatility in metals today, as gold was sharply lower ahead of the cash market open. Prices have since stabilized, but gold and silver are both off about 1.5% on the day. Bonds are slightly higher after catching a bid at lunchtime.
CHART OF THE DAY
Walter Energy (WLT) – WLT is a coal stock, and like other names in the space, price action hasn’t exactly been impressive as of late. However, I’m beginning to see signs that it may be ready to rally through the recent trading range it’s been stuck in since last August. On a daily time frame, WLT is forming an inverse head and shoulders, which often times can indicate the impending reversal of a downtrend.
On the sentiment front, investors have become very skeptical toward WLT. For much of last year, market participants deemed WLT a takeover target, a value play, etc., yet the shares failed to rally. As these previous bulls have now become bears, it seems that now would be an opportune time for WLT to catch these traders off guard. Sentiment in the options market is near a bearish extreme, as current put open interest versus call open interest is in the 99th percentile of all readings taken during the past 52 weeks. Additionally, short interest on WLT is at a seven-year high. Any positive news on the company(or in the coal space) could spark a sharp short-covering rally. I’m looking for a quick move back to the 40 level, with 50 being a stretch target. Should WLT close below 36(currently site of the 50-day moving average), I would exit the position. NOTE: WLT reports earnings on 2/20, so mind your risk into that event. If we see a rally between now and then, look to book some profits and leave some exposure in case of an outsized move on that report.
WHAT I’M EXPECTING
A push up toward 1525 on the S&P 500. Bears just can’t seem to seize control of the market, and we should continue to drift higher until some sort of news surfaces. Whether that’s in Europe, Japan or domestically remains to be seen, but U.S. markets have held up well despite growing fears in Europe. 1515 and 1500 are your support levels to watch below.