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.
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.