Another day, more dull action. After a weekend lacking significant market-moving news, the S&P 500 has been trapped in a six-point range today. At present levels, the Russell 2000 and Nasdaq Composite are each up 0.2%, and the S&P is flat for the day. Commodities have a slight bid, while bonds are also modestly higher for the day.
Much of today’s choppy action could be viewed as “The calm before the storm,” as we likely have an eventful rest of the week ahead of us. Tomorrow begins the two-day meeting of The Federal Open Market Committee, and Thursday and Friday will mark the release of more significant economic data. We remain pressed up near the highs of the recent range in the market, and any bit of positive news could spark a breakout.
CHART OF THE DAY
Take-Two Interactive Software (TTWO) – The chart below shows the software maker poised to break out of its recent bull flag. Price action on the equity this year has been sluggish, with the stock down about 8%, but the bounce since bottoming in August has been dramatic. In only four short months, TTWO has rallied by over 50 percent.
Despite its recent strength, sentiment toward TTWO remains very bearish. Currently, over 26 percent of the company’s float is sold short. Additionally, the front three months’ option activity has been near the most bearish level seen over the past 52 weeks. These two factors create the potential for an unwinding of bearish positions, which could act as a strong tailwind toward the equity. Lastly, you’ll notice that TTWO is forming what’s known as a “Golden cross” to technicians. This occurs when the rising 50-day moving average pierces above the falling 200-day moving average. This bullish chart pattern, coupled with bearish sentiment, could be a recipe for a strong move higher. Going forward, the 12 level should act as support and a move to 16 is possible.
WHAT I’M EXPECTING
I would look for markets to be slow into Wednesday, and then some fireworks that afternoon once the Fed Minutes are released. Keep a close eye on gold, in that any rumblings of further Fed stimulus would likely be a signal that markets could run higher. Until then, only take your best trading setups.