After an ugly start to the day, markets have regained some footing but price action is very mixed for the day. Futures were significantly lower at about 6:00 this morning, but buyers stepped in as we’ve seen time and time again, and equity indexes are near the middle of their daily range. Currently, the Nasdaq is today’s relative strength leader, up 0.2% amid further strength by Apple Computer (AAPL). All other major indexes are near flat for the session. Bonds are weak yet again, down over 1% and trading near their session lows. After a brief rally in metals over the past few days, gold and silver are back to their weak ways, down over a percent each.
CHART OF THE DAY
Sears Holding Corp. (SHLD) – The retail company was strong for most of the year, but its recent earnings report was less-than-stellar. As a result, SHLD gaped significantly lower and has since chopped sideways below its 50 and 200-day moving averages. Despite this weak report, sentiment remains fairly constructive toward SHLD. In fact, short interest on the equity is currently near multiyear lows despite continued troubles within the company. This creates the potential for new bears to initiate positions, which could have a dampening effect on any rallies going forward. In addition to this, there is heavy call open interest at the June 50-strike, which could also cap any rallies going forward.
I like a bearish entry here with a stop on a close above 52. I would initially target a move down to 44, with 40 as a stretch target.
WHAT I’M EXPECTING
I’m looking for a significant break of this week’s range next week. Volatility is mean reverting by nature, and this week’s chop should be resolved soon. Given the enormous amount of economic data set to be released next week and the potential for news over the weekend, markets should show their hand at some point, and we’ll get confirmation as to the direction of the next leg. Here and now, I don’t feel there’s much edge in trying to predict the move either way. Hopefully we’ll get some clarity next week.