The recent sharp selloff on Fed tapering news seems to be a thing of the past, as equities continue to erase those losses and now eye the recent all-time highs. Stocks gapped higher this morning, sold off a bit, but have since run back near the highs of the day. At present levels, the Russell 2000 is leading, up by about 0.9% on the session and continues to outperform other major indexes. The S&P 500 is higher by about 0.7%, while the Nasdaq and Dow are lagging yet again. Bonds have been fairly volatile intraday, but are currently flat for the session. Metals are again slightly higher, with gold and silver both up by 0.6%.
CHART OF THE DAY
ExOne Co. (XONE) – The 3D printing name has been on an absolute tear as of late, up by over 200% since its IPO in February. The shares have recently gone parabolic, but today appear to be exhausted at current price levels. While the trend remains sharply higher, in my opinion there currently exists a nice setup for a mean-reversion play. Today, XONE is currently printing a doji candle on the daily chart, and could be a sign that its recent move could be coming to an end for the time being. This is by no means a high-probability setup, but it offers excellent reward potential for limited risk. That said, size your position accordingly.
I like a bearish entry here with a stop on a close above 75. I would initially target a move down to 65, with 50 as a stretch target.
WHAT I’M EXPECTING
At the present time, I’m still not convinced of the recent rally. That said, a move back above 1660 on the S&P 500 would be a sign to me that markets are ready to challenge their all-time highs seen in May. Sentiment has gone from extremely bullish near the top, to very bearish after the Fed news, to back in the overweight camp at the present time. Any sort of negative news could cause recent new longs to quickly panic out of their positions, as recent market sentiment swings wildly in a matter of days instead of weeks. I continue to believe that a long/short portfolio is the optimal way to play the current low-correlation environment.