• Daily Game Plan – Full Bull Mode

    by  • February 1, 2013 2:16 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets are significantly higher today, as headlines across the world will focus in on the Dow Industrials finally breaching the 14,000 mark.  This morning, we were met with a basket of economic data, most of which looked very positive.  The one fly in the ointment was the headline unemployment rate, which actually rose to 7.9%.  However, despite this negative data point, the past two months’ employment numbers were revised significantly higher.  The general consensus regarding the information we received this morning is that while conditions are improving, we’re not out of the woods quite yet.  For this reason, the Fed must continue to backstop the economy with continued stimulus, which will further support stock prices indefinitely.  Given today’s price action, it’s tough to debate that thesis.

    At current levels, all indexes are up about 1% for the day.  After gapping higher, bonds are trading on their lows, down 0.8% on the day.  Metals are higher, with silver up 1.6% and gold trailing, up only 0.3%.  Volatility is seeing a massive crush today, as the VIX is off nearly 11%.

     

    CHART OF THE DAY

    Salesforce.com (CRM) – The cloud computing and enterprise software concern has been on a tear recently, up about 50% over the past 52 weeks.  Despite this strength, sentiment toward CRM remains skeptical.  Currently, over 11% of CRM’s float is sold short.  This translates into a total of about 14.7 million shares currently sold short, and that is only slightly off the all-time high bearish reading of 16 million seen on 12/15/12.  This means that despite the stock trending steadily higher, bears refuse to throw in the towel on CRM.  If and when they finally decide to do so, there could be a sharp rally to the upside.  In addition to the high short interest, sentiment in the options market is very bearish as well.  In the front three months’ open interest, there are currently almost 1.5 puts open for every call.  This is a continued sign of disbelief toward CRM.

    The 20-day moving average (blue trendline) has been a good guide for CRM since the middle of 2012.  With the shares now pulling back to this area, it could act as support going forward.  A long entry here looks good, and I’d use a close below the 170 level as a sign to exit the position.  A move to the 200 level is a nice upside target for this trade.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    It’s tough to say anything other than “More upside.”  However, I’m beginning to see signs that people are beginning to get very complacent, and some downright euphoric.  That said, respect the trend, yet mind your risk.  Bull markets can often times last much longer than you may think, even when common logic tells you to sell everything.

    I’ve taken at least partial profits on all long positions from the past few weeks, and would like to see a pullback to add more exposure.  Continue to play the market with a long bias, but please keep in mind that the bull market has no gone mainstream.  Given that volatility is currently so cheap, buying options is a great way to use leverage and also manage your risk going forward.

     

    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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