• Daily Game Plan – Momentum Leads Lower

    by  • September 23, 2013 1:54 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    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.

    courtesy of stockcharts.com

     

    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.

    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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