• Daily Game Plan – Range-Bound Trading

    by  • February 6, 2013 2:15 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 2 Comments

    MARKET CHECK

    After a strong open and rally up near the weekly highs, markets have softened some, and currently sit near the middle of their daily range.  Of all three indexes, the Nasdaq is the relative laggard, down 0.5%.  Both the S&P 500 and Russell 2000 are each down by about 0.2%, while bonds and metals are up about a half percent.

    Over the past four trading days, markets have seesawed back in forth between the range formed by the highs from last week at 1514 on the SPX, and Monday’s lows of  1495.  There have been multiple attempts to regain the highs, but each rally is met with aggressive selling at the top of the range.  This pattern can prove frustrating for traders, and many will sit on the sidelines until there is a definitive break in either direction.

     

    CHART OF THE DAY

    Nike (NKE) – Despite a surge higher from the 45 area(split adjusted) in November, 2012 to 54 at present levels, there continues to be growing skepticism toward NKE.  The shares have been guided higher by their 20-day moving average since 11/16, and the recent pullback to that trendline looks like a good buying opportunity.

    Despite its recent strength, sentiment toward NKE remains skeptical.  Currently, there are over two puts in the front three months’ open interest for every call.  Capitulation by these bearsh could act as a tailwind toward the shares.  Additionally, analysts aren’t buying in to the NKE story.  Since its inception, NKE has rallied from $1.50/share to its current price of about 52.  Despite this massive rally and strong fundamental story, 12 of the 17 analysts covering the equity still have it rated a “hold.”  This creates room for future upgrades, which would drive NKE higher.  I like an entry here with a stop on a close below 53.50.  I’d initially target a move to the previous highs around 57, and would look for an eventual break to new all-time highs.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    A retest of Monday’s lows.  Given the range-bound action, try to buy dips near 1495 on the SPX, and sell rallies into 1514.  The formation we’re seeing on the daily charts is known as a “Broadening top,” and these can be difficult to trade.  Essentially, it’s a widening of the range, where a series of higher highs and lower lows emerge.  These can often signal uptrend reversals, but I’m not quite ready to say a top is in.  That said, treat this as a range, and should markets break in one way, that should be your short-term directional bias.  Levels of interest going forward are 1525, 1514, 1500, 1495, and 1474 on the SPX.  Given the current balance in the market and lack of real trend over the past few days, less is more until we get a break.

    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/

    2 Responses to Daily Game Plan – Range-Bound Trading

    1. akabeachguy
      February 6, 2013 5:35 pm at 5:35 pm

      Thumbs up on what you are expecting. Good stuff!

      • Brysapp
        February 7, 2013 7:58 am at 7:58 am

        Thanks! Should be an interesting next few days.

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