• Daily Game Plan – Holiday Lull

    by  • November 21, 2012 2:14 pm • Quick Hits • 0 Comments

    MARKET CHECK

    Indexes are modestly higher ahead of the tomorrow’s Thanksgiving holiday, with the Russell 2000 leading the charge, up about 0.5% on the day.  Similar to equities, both bonds and commodities are near breakeven on the day.  Market breadth is relatively strong, with advancers outpacing decliners at nearly a 2:1 clip.  As expected, volumes are very light, as many major market participants won’t do too much with their portfolios until Monday.  Currently, volume on the SPDR S&P 500 Trust (SPY), the ETF proxy for the S&P 500, is about half of what you would see on a “normal” day.

    Some noteworthy relative strength winners today include FB, RIMM, VMW, CRM, HPQ, CTXS, JOSB, and COH.  With the exception of GOOG, INTC and BIDU, technology is very strong today.

     

    CHART OF THE DAY

    Valero Energy Corporation (VLO) – the company is a large refiner of oil and petroleum products.  Fundamentally, the environment has been very fruitful for refiners over the past few months.  It’s a pretty involved analysis, but simply put, refiners benefit most when their input costs(raw crude oil, etc.) are low, and the products that they produce(gasoline, petroleum jelly, heating oil, etc.) are selling at a relative premium to the raw materials.  This environment has led to significant price appreciation, and there doesn’t appear to be anything to slow this down in the near future.

    Technically, you have to love the look of this chart and how it has worked off the overbought conditions seen in September.  After failing to retake its 50-day moving average(blue trendline) a couple times over the past month, VLO retook it yesterday, and the moving average could now guide the stock higher.  In addition to the strong technical setup, sentiment toward VLO remains skeptical.  Currently, nearly 7% of VLO’s float is sold short, and total short interest actually increased by about 50% over the past month.  Additionally, only 6 of the 13 analysts covering VLO have it rated a “buy.”  The skepticism surrounding the company, coupled with strong price action and a favorable fundamental environment, are a few reasons why a long position makes sense here.  Going forward, I’d key on the 30.50 level to buy pullbacks and a break and hold below 30 would be a sign that this thesis is incorrect.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Gluttony.  Thanksgiving may be the greatest holiday in America-what other day is it acceptable to gorge yourself on delicious food and watch football all day?  Enjoy the break, and be ready for some action next week–starting Tuesday, there’s some pretty important economic data to be reported.

     

    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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