After a seemingly hopeless day amid catastrophic news out of Boston and a massive market selloff, stocks have pared some of yesterday’s losses and are currently trading near their highs of the day. Stocks opened modestly higher and chopped sideways for the first hour or so this morning, but the lows seen around 1550 on the S&P 500 late this morning were met with aggressive buying. Presently, the Russell 2000 is leading the market higher, up 1.5% on the day, with most other major indexes trading up by about 1.3%. The extreme weakness in metals has subsided for the time being, as gold and silver are both up over 2% on the day. However, this bounce is seemingly insignificant in the face of the 10+% two-day selloff from last Friday. As you would expect with strong equity markets, bonds are weak today, off about 0.8%. Lastly, volatility is getting crushed today after an outsized move yesterday. At present levels, the VIX is off by about 19%
CHART OF THE DAY
CREE, Inc. (CREE) – Shares of the LED lighting company have been extremely strong as of late, up over 60% year-to-date and over 75% over the course of the past 52 weeks. However, despite this extreme strength, sentiment toward the equity remains skeptical. Currently, the front three months’ option open interest shows over 1.2 puts open for every call, ranking it in the 95th percentile of all readings taken over the past 52 weeks, and showing near-extreme bearishness. Additionally, despite the very strong rally, over 12% of CREE’s float is sold short. These two sentiment data points are good examples of continued disbelief of this story, and create the potential for further upside in CREE.
I like a long entry here with a stop on a close below 52.50. I would initially target a move to 60, with 70 as a stretch target.
WHAT I’M EXPECTING
Another test of 1550 on the S&P 500 in the very near future. Although today’s rally is a nice relief for longs, we are far from out of the woods yet. Yesterday’s selloff caused some serious damage, and it may take time to shake off the cobwebs. It’s possible that markets can remain in the 1550-1575 range for the rest of the week, but given the slew of big earnings next week, it is likely that we’ll see another big move after April options expiration.