• Daily Game Plan – Pre-Fed Rally

    by  • December 11, 2012 2:14 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    Markets gapped slightly higher this morning, but the buying continued right from the open.  Indexes made their daily highs near lunchtime, but we’ve since consolidated sideways as the bulls remain in control.  At current levels, the Nasdaq is leading the charge, up 1.6% on the day, with the Russell 2000 and S&P 500 both up about a percent each.  The Nasdaq outperformance can largely be attributed to significant strength in Apple Computer (AAPL), which is higher by about 3%.    While bonds are significantly lower, it’s a bit surprising to see commodities weak today, especially ahead of the FOMC release tomorrow.

    This rally has come as a surprise to many, myself included.  While there is a general tendency for markets to drift higher into Fed days, the probability of this occurring at current levels seemed lower than normal.  That said, there is now more “pressure” put on the bulls and Bernanke to maintain the upward momentum tomorrow.

    CHART OF THE DAY

    Research In Motion (RIMM) – Many people are familiar with this past tech leader.  For those of you not “in the know,” RIMM makes the (once) popular Blackberry mobile phones and tablets.  Since AAPL took control of that market a few years ago, RIMM stock has been under serious pressure.  However, the company is launching a new product, the Blackberry 10, in early 2013.  Early reports of the phone’s capabilities and beta testing have been favorable, and RIMM stock has seen a bounce over the past few months.

    What I particularly like about this setup is the bull flag pattern after nearly a 100 percent rally from the lows, coupled with extreme negative sentiment among market participants.  Current short interest on RIMM is at an all-time high(104 million shares, 21% of float), and any further positive news could cause sharp rallies into the phone’s release date.  While the daily chart does look a tad overbought here, a technical pop here is still very possible.  If you take a look at a weekly time frame, you’ll see that there is still room to run to the upside.  I’m looking for a move to 15, and a close below the 12 level would be a sign to exit the trade and look to re-enter at a later date.

    courtesy of stockcharts.com

    WHAT I’M EXPECTING

    Continued upward pressure by the bulls.  Markets have digested the early gains well, and we look poised to rally into the close and potentially into tomorrow’s Fed release.  Pay close attention to the reaction at 12:30 tomorrow for the clue to your next move.  The 1425 resistance level on the S&P 500 that we broke this morning should now act as support.  I’m looking for potential resistance at 1440 and 1460 overhead.  Also, keep a close eye on the 520-560 range in AAPL, as its next move could have major implications for the overall market.

    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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