After the seemingly endless run-up in stocks over the past couple weeks, stocks have hit a stopping point near their previous all-time highs and are selling off today. Given the huge move off the lows from Bernanke’s tapering announcement, you would have to suspect that many long players are now positioning accordingly ahead of his testimony tomorrow morning, and locking in some gains. Currently, the Russell 2000 and S&P 500 are lagging all other markets, with each index off by about 0.5% on the session. Today’s relative strength leader is the Nasdaq, which is lower by 0.1%. Metals are seeing a small bounce today, but miners are significantly higher. The Market Vectors Gold Miners ETF (GDX) is up by over 4% on the session, and is higher by about 15% since making fresh 52-week lows at the end of June.
CHART OF THE DAY
Omnivision (OVTI) – The electronic component company recently soared on better-than-expected earnings, and has since consolidated back near the 17 level, site of former resistance from late 2012. This level also coincides with the 50-day moving average, which could also act as support going forward. Despite its strength, short interest on OVTI remains an elevated 12% of the company’s float, and could create sharp future rallies. This combination of strong price action amid tepid sentiment offers a nice contrarian long.
I like a long entry here with a stop on a close below 17. I would initially target a move to 19, with 22 as a stretch target.
WHAT I’M EXPECTING
While I still think the S&P 500 will take out its former all-time highs, the risk/reward tradeoff here for longs is far from ideal. Going forward, look for larger pullbacks that what we’re seeing today to get fully long. I would initially look for a move down to 1650 to start nibbling on the bull side. You can still stock pick in this environment, however. Keep a close eye on the market’s reaction tomorrow, as Ben Bernanke could certainly say something to spark some volatility in the near term.