The insanity continues. Markets were significantly lower off the open this morning as rumors of a U.S. downgrade were circulating. After some serious weakness for a few hours, a New York Times report surfaced that John Boehner told other Republican leaders that he wouldn’t let the U.S. default on its debt. As you can imagine, markets loved “hearing” this news, and stocks are sharply off the lows. However, they still remain in the red for the session. Today’s relative laggard is technology, as the Nasdaq is lower by about 0.9% at present levels. The S&P 500 is holding up the best of all major indexes, as it’s lower by about 0.7%. Bonds are trading near breakeven, while gold and silver are slightly higher at the present time.
CHART OF THE DAY
Facebook (FB) – Everyone is aware of what the social media giant has been doing lately, as the once hated company has now become a Wall Street darling. However, there are signs that the trend could be ready for a breather, at least in the near term. FB has printed multiple doji candles on a daily chart this week, indicating indecision and a potential reversal point. Additionally, traders have been buying calls hand-over-fist, as nearly 3 calls have been bought for every put over the past 10 days. This exuberance is near an extreme, and could be a good signal to take a more cautious stance toward the shares. FB has failed to hold the 50 level, and this offers a nice risk/reward entry for a countertrend play. This trade has a lower probability of working than most, but the potential for a big payoff makes sense to me here.
I like a bearish entry here with a stop on a close above 51. I would initially target a move to the gap from 9/23 around $47.50, with $42.50 as a stretch target.
WHAT I’M EXPECTING
Anyone’s guess is as good as mine right now. 1680 on the S&P has yet to be breached and held, but the longer that level is tested, the more prone it is to eventually breaking. The market has traded below this level intraday twice in the past four days, but closed above it both times. There is a general sense of fear among some market participants, but until there is some sort of deal in the works with regard to the government shutdown and debt ceiling, the market will be very headline-driven. My current positioning is net market neutral, but there are still good setups on each side.