Price action since the Fed announcement last week has been poor, and today is no exception. Despite markets hearing what they “wanted to,” stocks have slid 2% since last Wednesday’s highs, and the S&P 500 is currently back near the 1700 level. One thing that’s notable today is that former momentum leaders from the past few weeks are very weak, as names like NFLX, TSLA, P, YELP and GMCR are vastly underperforming a moderate down day on the indexes. In addition to these names, financials are very weak, on the heels of a report that Citigroup (C) will likely see a large drop in trading revenue this quarter. Currently, the S&P 500 is today’s relative laggard, down by about 0.5% on the session. Other major indexes are lower by only about 0.3% for the day. Bonds are catching a bid as 10-year yields are dipping back near the 2.7% level, while metals are also slightly higher.
CHART OF THE DAY
Excelon Corp. (EXC) – The utilities service holding company has been in a tight trading range, and there are signs that it could be ready to break. In fact, the Bollinger Band width(bottom pane in chart below) is at an extreme low. Given the mean-reverting nature of volatility, this could be a sign that EXC is setting up for an explosive move. Additionally, short interest on the name has recently soared to a fresh two-year high. Options on EXC are currently priced in the bottom 10% of all readings taken over the course of the past 52 weeks, creating a nice entry for a long volatility strategy. Lastly, EXC is set to present at two conferences in the next two days. Any news from these could spark new interest in the stock.
Traders of Schaeffer’s Volatility Trader service were given this recommendation earlier today — I like buying a November 30-strike straddle here for about $2.05. This trade will profit on a move above $32.05 or below $27.95 by November 15, 2013. EXC should report its quarterly earnings at the end of October(although currently unconfirmed), and these numbers could also cause some movement in the stock.
WHAT I’M EXPECTING
Dip buyers stepped in late this morning, so it appears we may have a tradable low for the time being. Going forward, I have a long bias, but will become more cautious should today’s lows get breached. Below there, 1680 or so is the next support level.