• Daily Game Plan – Rate Relief

    by  • June 26, 2013 2:20 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments


    After yet another “heavy” overnight session, futures pared their losses on the heels news out of the ECB, and the S&P 500 shook off the early weakness.  From there, stocks rallied on the open, pulled back mid day, and have since bounced back near the highs.  There was a five-year bond auction at 1 pm today, and while the results weren’t all that great, bond prices did rally and yields declined.  This intermarket action sparked some buying in equities, as the global macro trade remains firmly intact.

    At current levels, the Dow is leading markets higher, up about 1% for the day, while the Russell 2000 is lagging, up a mere 0.4% for the session.  Bonds are catching a bid after today’s five-year auction, and currently about 0.8% higher for the day, while the swoon in metals continues.  Gold is off about 3.5%, while silver is 4.5% lower on the day.  Volatility is getting crushed, as the VIX is 6% lower, and currently down over 20% from Monday’s highs.



    Lennar Corp (LEN) – The housing concern has been very weak lately as yields have risen dramatically, and the shares are currently trading near 52-week lows.  The company reported blowout earnings earlier this week, but the stock couldn’t sustain any rally.  Additionally, there have been numerous positive data points for housing that should be bolstering homebuilding names, but this isn’t the case.  In addition to the weak price action amid positive news, sentiment toward LEN has also grown very bullish.  There has been rampant call buying over the past few days, but the stock still can’t bounce.  As a contrarian, these are the types of things that you like to fade.

    I like a bearish entry here with a stop placed on a close above 37.  I would initially target a move down to 32, with 28 as a stretch target.

    courtesy of stockcharts.com



    While the S&P 500 has bounced back to 1600, the general market consensus remains “short bounces.”  For this reason, I’m thinking the bears entering positions here could feel some pain into Friday should the upward momentum continue into the close today.  In addition to this “obvious” short that I think will fail, Friday marks the end of the fiscal second quarter.  If history has taught us anything over the past few years, there are generally significant markups into quarter end as funds look to pad their numbers.  This is a tailwind that I wouldn’t like to fade, so I’m expecting a significant push from here.  I don’t think a move back to 1630 on the S&P 500 by Friday is out of the question.  Should today’s lows of 1592 get breached to the downside, it would be time to abandon this thesis.


    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.


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