• Daily Game Plan – More Selling

    by  • November 8, 2012 2:33 pm • Quick Hits • 1 Comment


    Another day, another move lower.  Markets opened near yesterday’s closing levels, and were met with aggressive buying for the first 15 minutes of trading.  However, that excitement waned quickly, and we’ve since sold off about 20 S&P points from those highs.  It seems the bears are taking the opportunity to short every bounce, and they certainly have control of the market at this point.  At the present time, all indexes are lower, with the Russell 2000 leading, down about 1 percent.  Metals are having yet another strong day, even as the dollar strength remains.

    An interesting level to watch going forward is 1380 on the S&P 500.  This is the site of the 200-day moving average, and today’s lows(which occurred at the heaviest volume levels of the day) were a mere .52 from this trendline.  Since making these lows, we have bounced about 6 points on the S&P 500.   Often times, panic selling will mark significant lows, and the flush we experienced at about 1:20 is definitely noteworthy.  This sharp selloff came on the heels of a 30-year bond auction that saw heavy demand, indicating a preference for safety.  This event could be the catalyst to flush out the weak longs and drive the market higher.



    Apple Computer (AAPL) – Below is a chart of everyone’s favorite stock, which has experienced massive selling over the past two months.  The blue lines on the chart are Bollinger Bands, which mark two standard deviations above and below the current price action.  Stocks will travel outside of their Bollinger Bands on extreme moves, which are often times accompanied by news.  In this case, there isn’t significant news, but many are speculating that AAPL longs are heading for the exits ahead of the end of the fiscal year, when capital gains taxes are likely to increase.  In my opinion, this selloff is overdone here.  Anecdotal sentiment has turned from euphorically bullish to a consensus opinion that it’s going much lower.  What’s ironic is this company has great fundamentals, yet even the fundamental analysts no longer seem to like it.

    Look back at the charts and how well AAPL has respected its Bollinger Bands this year.  Here and now, the stock has seen three closes below its lower band in the past five days.  Coupled with today’s heavy volume(which certainly will see a big spike into the close), this is a sign that AAPL could be setting up to bounce.  Trading counter trend in this fashion can be very risky, but the rewards on the upside can often times be huge.  I’d take a stab at AAPL long here and sell it on a close below 530.  600 is a realistic short-term upside target, so you’re risking about $14 to make $58, a reward:risk ratio of over 4:1.

    courtesy of stockcharts.com



    I’m looking for a bounce in the S&P’s back to the 1400 level.  It will be interesting to see what happens there, as it’s an obvious area for bears to short against.  We’ve seen two major bond auctions this week that shunned equities, bad news out of Europe that ironically surfaced right after the Presidential election ended, and a general sense of hopelessness among active market participants.  At the present time, I think the fear is a bit overblown and we’re setting up for a relief rally.  Should my thesis be incorrect and we break 1380 and close below it, the next potential support level to watch is at 1360.


    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.


    One Response to Daily Game Plan – More Selling

    1. chumash
      November 8, 2012 4:54 pm at 4:54 pm

      We broke below 1380 and closed below it. Now here comes 1375,1360, 1320 and finally 1280. As I have been saying if you don’t take your profits off the table…By the end of the year you will have lost them ALL!

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