• Daily Game Plan – Fed Day

    by  • January 30, 2013 1:43 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET WATCH

    Markets are on hold for now, as traders await the key FOMC Statement release at 2:15.  Indexes continue to probe the top of their yearly ranges, as concerns mount regarding the economy.  Today, the 4th quarter GDP number was released, and it actually showed a period of negative growth from the third quarter.  Markets sold off sharply on that news, but have since rebounded.

    At present levels, the Nasdaq is the strongest index of the day, up 0.1%, while the Russell 2000 is weak yet again, down 0.4%.  Bonds are again lower, down 0.5%, while metals are bid, with gold and silver each significantly higher.

     

    CHART OF THE DAY

    Western Digital (WDC) – The electronic storage company has been very strong this year, up over 10% since the beginning of the month.  Yesterday, WDC sold off sharply on Seagate Technology’s (STX) quarterly earnings numbers.  While STX’s guidance was a tad troublesome, it’s particularly interesting that WDC reported its earnings only a few days ago, and there were no major cautious mentions at that time.  It seems that the fear may be a tad overblown.

    While price action has remained strong, sentiment toward WDC is very skeptical.  Currently, put open interest versus call open interest in the front three months’ options series is at the highest bearish reading seen over the past 52 weeks.  Given this, coupled with the continued strong price action and continued analyst skepticism, there is the potential for a continued rally should these bears begin to capitulate.  I like an entry here with a stop on a close below 45(near the 20-day moving average).  I’d initially target a move to the 50 level, but a rally back to the highs seen in 1997 near 55 seems possible.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    All bets are off ahead of the Fed minutes.  Most market participants aren’t expecting much new in the way of policy or forecasts, but whenever there is a consensus that “nothing will change,” I always am on alert.  I would expect this uptrend to continue, but keep a close eye on the verbage of their statement and the market’s reaction.  Given the ugly GDP number this morning, I suppose there is the possibility of another form of stimulus in the near future.  Gold and silver sure seem to think so today.

    A few things that I’ve noticed over the past few days are weakness in the Russell 2000(which has led the rally so far this year), weakness in the transport names today, and also the rollover in junk bonds (JNK).  All three of these indexes are used as a gauge for risk appetite, and the recent rollovers have definitely peaked my attention.

    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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