• Daily Game Plan – Italian Elections Weigh on Markets

    by  • February 25, 2013 2:17 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments


    After a gap higher from Friday, markets were met with buying on the open, but that 30-minute drive higher then faded sharply.  After being up over 0.6% on the day at around 10:00 A.M., the S&P 500 is now about 0.7% lower and is trading near the lows of the day.  Much of this selloff was fueled by uncertainty surrounding the pending Italian elections, and as you may know, markets are never fans of uncertainty.  Every rumor that surfaced regarding who was in the lead led to violent(relatively speaking) intraday swings, but those swings have ultimately resulted in a big reversal.

    At current levels, the Russell 2000 is the relative laggard, down about 1% on the day, with the Nasdaq off only 0.4%.  Bonds are seeing a very strong bid, as the iShares Barclays 20+ Year Treasury ETF (TLT) has rallied massively intraday, and is currently up about 1.3%.  As you would imagine, volatility is spiking as well, with the VIX up about 19% on the day.  There has been notable strength in metals all day, with gold and silver both up about three quarters of a percent, and miners up about 1.5%.



    Suncor Energy (SU) – Given that I’m currently much less constructive on the markets than I have been for the past few months, I continue to look for short setups, and I like what I’m seeing here in Suncor.  Recent price action in the equity has been lackluster, with SU down nearly 10% year-to-date despite a very strong bull phase.  The shares recently broke below their 200-day moving average and have since bounced into that trendline(40-week moving average in blue below), offering good risk/reward on a short setup.

    Despite weakness in the name for some time, sentiment toward SU remains very bullish.  Of the 12 analysts covering it, all of them have it rated a “buy,” with not a single “hold” or “sell” recommendation.  This creates the potential for future downgrades, which could act as a headwind toward the shares.  In addition to this, sentiment in the options market remains very bullish, as there are nearly 3 calls for every put in the front three months’ open interest.  Capitulation by these option bulls would cause a bearish unwind, and potentially drive SU lower.  Lastly, short interest on SU is currently under 1% of the stock’s float, and is at a two-year low.  This creates “room” for new short positions to enter and bet against SU.  I like a short entry here with a stop placed on a close above 32.50.  I would initially target a move to the 29 level, with a stretch target of 26, the lows from last June.

    courtesy of stockcharts.com



    Continued selling pressure.  While the recent “breakdown” hasn’t been textbook, the bulls failed to make new highs on today’s push higher.  The S&P 500 is currently near the key 1500 level, and the more times that area is tested, the more prone it is to breaking.  I would expect that to occur sometime today or tomorrow, and then expect markets to push toward 1476.  Although things look very vulnerable here and now, you must respect the trend of the past few years.  For that reason, trading a long/short stock portfolio with little directional bias is optimal in my opinion.


    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.


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