• Daily Game Plan – Asian Hope?

    by  • June 25, 2013 2:01 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 2 Comments

    MARKET CHECK

    Markets are higher today, but not after some significant overnight and morning turmoil.  May traders are closely watching Shanghai markets, as they’ve been in freefall for some days now.  Last night was no exception, as the index traded over 5% lower before a news-induced rally.  After the swoon, rumors surfaced that China would consider a negative rates on deposits, which in turn would likely spark spending(and thus economic stability).  This news was taken very positively, as stocks rallied over 7% off their lows and closed on the highs.

    The late-day strength in China is spilling over into domestic markets, and stocks are currently only slightly off their highs.  The S&P 500 is leading today, up about 0.9% on the session, while the Russell 2000 and Dow are each up by about 0.7%.  Today’s relative laggard is the Nasdaq, up only 0.6%, amid continued weakness in the shares of AAPL.  Bonds are lower yet again, as 10-year yields continue to climb higher, and remain perched above the 2.5% level.  Equity bulls would like to see some weakness in rates, as they’ve been a huge hindrance for stocks as of late.  Metals are slightly lower on the day, but are trading in a wide range.

     

    CHART OF THE DAY

    Zale Corp. (ZLC) – The specialty jewelry retailer has been very strong as of late, as the equity has rallied over 100% year-to-date.  The shares recently spike dramatically higher on blowout earnings, and have since consolidated back near the 8 level, site of a very key former resistance zone.  This area should act as support going forward.

    I like a long entry here with a stop on a close below 8.  I would initially target a move to 10, with 12 as a stretch target.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Assuming markets can hold their lows made this morning, I’m looking for a move back to 1600 and beyond on the SPX.  Sentiment seems to have soured in a hurry, as most traders appear to be in bounce-shorting mode.  Additionally, stocks have weathered the interest-rate storm for the time being, and are higher despite rates also moving northward.  Given the equity resiliency today, it appears that we’re ready to bounce from here so long as rates don’t see a continued dramatic spike.  Should today’s lows be breached, I would alter my thesis going forward.  As far as upside targets go, it seems that everyone is watching the 1600-1610 area.  Given that it’s rare for “everyone’s” thesis to play out perfectly, I think there’s the potential for an overshoot to the upside, with 1620 or so as a potential upside target.

     

    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 – Asian Hope?

    1. Brandon Gilkey
      June 26, 2013 8:51 am at 8:51 am

      Bryan, great stuff. It’ll be interesting to see if we bounce through 1600. At that point do you feel as though we resume uptrend or chop or move lower? Also what instrument do you use to follow/track rates?

      • Brysapp
        June 26, 2013 1:36 pm at 1:36 pm

        Thanks for the kind words. In my opinion, the 1600 and 1610 levels are “too obvious,” as everyone seems to now be looking to short bounces into there and sentiment has definitely soured. Also, I like how well stocks have performed over the past two days with rates slightly higher, so this could be the market accepting a higher interest rate environment. For those reasons, I’d target something back up around 1625. I use $TNX and $TYX to track 10 and 30-year rates, respectively.

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