• Daily Game Plan – Markets Resume Lower

    by  • April 17, 2013 2:13 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    After yesterday’s bit of relief, markets are once again moving lower.  Today’s swoon began in the overnight futures session, as the German DAX hit fresh four-month lows.  That weakness has bled over into domestic markets, as all indexes are significantly lower from yesterday.  Currently, the Russell 2000 is the relative laggard, down 2% on the day, with the S&P 500 and Nasdaq each off over 1.5%.  Apple Computer (AAPL) continues to slide lower, as the stock hit a fresh 52-week low today.  Volatility is exploding yet again, as the VIX is up nearly 20% on the day, and bonds are once again seeing a bid, up about 0.9%.  What continues to be amazing is the lack of a bounce in metals and the miners.  After trading slightly higher this morning, both gold and silver are now flirting with negative territory, and the miners are off another 3%.

     

    CHART OF THE DAY

    Weight Watchers (WTW) – The weight management service company has seen many significant moves over the course of the year, and appears to be setting up for another.  After gapping significantly lower on earnings and continuing its swoon for another few weeks, WTW has hit a period of extreme volatility compression.  This recent sideways action looks ready to break, and now appears to be an opportune time to buy a straddle on WTW.

    Short interest remains elevated, currently at 16% of WTW’s float.  Additionally, options are currently cheap, as they’re priced in the bottom third of all readings over the past 52 weeks.  Given WTW is set to report earnings in a few weeks, now looks to be an opportune time to enter this position.  I favor the July 40-strike straddle ahead of earnings, as you can purchase an extra two months’ time for merely $1.50 more than the May straddle.  I would look for either a quick move back to  the gap from February 13, or a break down to the 30 level.  Subscribers of Schaeffer’s Volatility Trader entered this position earlier today.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Continued volatility.  The S&P 500 keeps flirting with the 1550 level, and the more it is tested, the more prone it is to breaking.  Below there, keep an eye on today’s lows of 1542(which coincides with the 50-day moving average), and also the 1525 level.  So long as commodities remain weak and European markets move lower, caution is warranted.

    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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