• Daily Game Plan – Housing/Materials Lead Markets Lower

    by  • February 20, 2013 2:25 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 4 Comments

    MARKET CHECK

    Markets opened flat this morning, but that was met with aggressive selling, as weakness in materials names and homebuilders is weighing on the indexes.  TOL, a homebuilder, reported worse-than-expected earnings this morning, and their numbers are dragging down others within its peer group.  Weakness continues in metals and mining names, as gold is 1.6% lower on the day and silver off by over 2.5%.  Recent weakness in metals, coupled with the FOMC minutes that were just released, could be a sign that the “Neverending QE” environment could be coming to an end sooner than we may think.

    Currently, the Nasdaq is the relative laggard, down by about 0.8% on the day, with the Russell 2000 off by 0.7% and the S&P 500 about 0.6% lower.  While the indexes are a good gauge for overall market strength or weakness, there are many names under the surface that are extremely weak, and that weakness isn’t reflected by absolute index moves of less than 1%.  Despite a swift move lower this morning, bonds are only modestly higher, up by about 0.2%.  Volatility is spiking, however, as the VIX is up by nearly 8% at current levels.

     

    CHART OF THE DAY

    Verizon Communications (VZ) – After a rocky start to 2013, VZ has settled in and clawed back into positive territory for the year.  The shares are breaking out of their base today, and look to move higher from here.

    Given what has happened since the beginning of the year, you would have to think that many of the safety players in VZ jumped ship as the market was soaring to new highs.  Given that VZ pays a 4.6% dividend, the safety of that yield was preferred over high-beta names as market fears loomed at the end of 2012.  Given the recent slowing market momentum, now could be a good time to jump back into VZ.  I like an entry here with initial targets near the  October highs around 47, and a stretch target of 50.  A break and close below 44 would be a sign to exit the position.

     

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Some meandering between 1500 and 1550.  It remains tough to do much of anything here, other than buying support on names in sectors that have been working, and selling strength in them.  At this juncture, I’d much prefer to react to price than make grandiose predictions on where we’re headed going forward.  Until 1500 breaks definitively, however, bias must remain to the upside.

    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/

    4 Responses to Daily Game Plan – Housing/Materials Lead Markets Lower

    1. akabeachguy
      February 20, 2013 5:49 pm at 5:49 pm

      Well, we got a good look today at what markets will be like without the printing presses running at full bore.

      Perhaps I started my accumulation of puts against my long positions a week or so too soon (see previous posts) but was sure glad I had them today. There is always a way to turn lemons into lemonade and puts was the main ingredient for today’s very tasty concoction.

      Till now all down days have been met with the following day taking back the loss. And then there is the Benny not allowing a weekly loss for how long now which means repair must start tomorrow and continue through Friday. In the past that has begun around 2:30 PM on the Thursday after a day like today. That not happening this time around could very well signal a change in direction and change in Fed’s agenda IMO.

      I can hardly wait!

      • akabeachguy
        February 20, 2013 6:23 pm at 6:23 pm

        Oh yeah – there was a red flag that went up as a warning early on of what was to come. A little after noon I noticed the VIX was up 7.72% and commented to a friend that something was up.

        And sure enough there was!

        • Brysapp
          February 21, 2013 1:37 pm at 1:37 pm

          Another VIX spike today. SPX testing 1500 right now for third time today – thinking it will break this afternoon and we head toward 1475.

          • akabeachguy
            February 21, 2013 1:41 pm at 1:41 pm

            yep — VIX cleared $15 and now knocking on $16 door bid at $15.86 as I type at 1:40 PM – over $15 is a key number for many – over that, and they figure markets have more to fall – your take looks like a good one

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