• Daily Game Plan – Markets Slide Amid Euro Fears

    by  • February 7, 2013 1:30 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    This morning, the ECB chose to keep rates stable for the time being, but there were some cautionary comments made by President Mario Draghi regarding the sustainability of the recent euro strength going forward.  For this reason, markets began to slide lower at about 10:15 this morning.  Since then, they have somewhat stabilized, but remain in the lower end of the day’s range.  Currently, we’re being led lower by the Russell 2000, down 0.5%, with the S&P 500 and Nasdaq each down about 0.4%.  Metals caught a bid on those comments this morning, but that has waned with equity markets.  Gold is currently down 0.4%, while silver is off by about 1.4%.  Surprisingly, bonds are only slightly higher, and the VIX is up about 6%.  VIX continues to meander around the 14 level, which traders should keep an eye on going forward.

     

    CHART OF THE DAY

    iShares Silver Trust (SLV) – the silver ETF has entered a period of volatility compression, and that appears to be ready for a big move in the near future.  Looking at a weekly chart of the ETF(below), you’ll notice a big triangle formation.  These patterns can often times signal a big move is right around the corner.  Given this technical pattern and recent emerging fears surrounding the euro zone, now looks to be an opportune time to enter a straddle play.  In addition to these fundamental and technical drivers, options on SLV are currently extremely cheap.  In fact, the volatility index on those options is ranked in the 3rd percentile of all readings taken over the past 52 weeks, creating a cheap way to play a break of this pattern.

    Subscribers in our Volatility Trader service received a recommendation this morning to buy the April 30.50 straddle for $2.50.  This trade will make money should SLV close above $33 or below $28 at April expiration.  In my opinion, a move back to the 2012 highs around $36 or a breakdown to $25 by the 4/19 expiration seems very possible.

    courtesy of eSignal

     

    WHAT I’M EXPECTING

    Continued intraday volatility and range-bound action.  Markets pushed toward Monday’s lows of 1495 on the SPX this morning, but it appears that they will hold for the time being.  Continue to sell strength and buy weakness until we can get a break of the recent 1495-1514 range.  Despite the recent mean-reverting action, there are still many interesting setups on individual equities.

    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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