• Daily Game Plan – Fed Concerns Linger

    by  • August 7, 2013 1:44 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets are lower yet again, as the evil “taper” word has once again been making the rounds over the past few days.  Given that the recent economic data has been relatively strong, many fear that the September FOMC meeting will in fact lead to some sort of news that will signal the ramp down of future asset purchases.  Whether or not this is true remains to be seen, but markets have been responding as you think they would.  Action in currency markets lead to a decline in the Japanese Nikkei of about 4% overnight, and this is obviously weighing on U.S. stocks today.  Equities were weak off the open today, but have since pared some of those losses.  However, despite this bounce, there remains nearly 2 declining issues for every advance.  Today’s laggard is once again small caps, as the Russell 2000 is off by about 0.6% for the session.  The S&P 500, Dow, and Nasdaq are each about 0.4% lower on the session.  Bonds are seeing some strength on the heels of two auctions over to the past two days, higher by about 0.6% on the session.  Metals are seeing a bit of a relief rally as well, as gold and silver are both slightly green on the session.

     

    CHART OF THE DAY

    Barnes and Noble (BKS) – The content retailer has been very volatile this year and entered a recent consolidation period.  However, there are some signs that it could be setting up for a big move in the near future.  The shares are currently forming a symmetrical triangle pattern, which appears ready to break.  BKS is currently slated to report earnings on August 20(although these are currently unconfirmed), and options could see a spike in implied volatilities into the report.  Additionally, their quarterly results could spark a big move by the equity.  Despite the current setup which looks explosive, options are currently priced in the bottom 10% of all readings over the past year, and short interest remains at over 20% of the stock’s float.  This makes a volatility play attractive at this juncture.

    I like buying an October 18-strike straddle on BKS for about $3.50.  Subscribers in Schaeffer’s Volatility Trader service were given this recommendation earlier today.  This trade will profit on a move above $21.50 or below $14.50 by October 18.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    I’m looking for today’s lows in the S&P 500 to hold for the time being, and think we could bounce back to the 1700 level from here.  Price action remains fairly tame, although there are some signs under the surface that we could be in for a bit of a correction.  I will continue to buy dips until the 1650 level is broken to the downside, but am currently very mindful of risk.  Bearish sentiment(per some of the surveys that we use) seems to have been washed out during the recent rally to new all-time highs, so this should be monitored closely going forward.  My conviction is currently very low on either side of the market, so I continue to play a long/short strategy with neutral net exposure until we can get some more clarity.

    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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