• Daily Game Plan – Super Bowl Hangover

    by  • February 4, 2013 2:26 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 2 Comments

    MARKET CHECK

    The Dow 14,000 exuberance from the weekend has waned in a hurry, and indexes are currently sitting near their lows of the day.  European markets saw broad-based selloffs today, much of which is carrying over into domestic names.  Technology is the relative laggard today, with the Nasdaq currently off 1.5% amid sharp declines by AAPL, GOOG, and AMZN.  The S&P 500 and Russell 2000 are both off by about 1%.  Breadth is also weak, as decliners currently outpace advancers by over 3:1.  Bonds are seeing a significant bid across the curve, as the TLT is up by 1.3%.

    The surprise move of the day is occurring in the metals markets.  Commodities typically trade in an inverse fashion with the U.S. Dollar, but despite a strong bid in the dollar(and thus, weakness by the euro), gold and gold miners are both up by 0.4%.  While a single day of trading doesn’t make a trend, keep a close eye on this relationship going forward, as a continued bid in gold amid euro weakness would be a sign of the flight to safety trade once again being en vogue.

     

    CHART OF THE DAY

    DeVry Inc (DV) – Education stocks have been bludgeoned for some time now, and DV is no exception, down by about 35% over the course of the past 52 weeks.  A look at the weekly chart below gives a better picture of just how bad things have become in that sector.  That said, DV’s last earnings report looked favorable, and the equity rallied by over 20% in one day.  The Bollinger Band width(bottom pane on the chart) has reached an extreme low, indicating DV is poised to make a big move.

    DV is set to report earnings on Wednesday, and the options market is pricing in a very modest move for the report.  That said, I like buying a March 25-straddle on DV ahead of this report, as options will likely see a spike in implied volatility into the numbers, and the stock could then see a big move(the past two reports for DV have resulted in over 20% moves in a day, yet the front-month straddle is pricing in only an 11% move).  The March options are even cheaper than February on a volatility basis, so that is the preferred way to play this earnings report.  This position profits if DV moves greater than $3.90 on either side of 25 by March expiration.  Given the inflated short interest, fairly cheap options, and lack of directional bias into DV earnings, this looks like a good way to capitalize on a big move in either direction.

    courtesy of stockcharts.com

     

     

     

    WHAT I’M EXPECTING

    I’m looking for some near-term volatility, given the moves in European markets today.  There have been signs of complacency creeping into the market, and the many newfound bulls could feel some pain over the next few days.  That said, the primary trend remains higher, so have your dip buy candidates ready for the rest of this week.  Given the strong bull market we’ve seen over the past few months, there are tons of support levels below for bulls to defend.  The two key support levels to watch below are 1474 and 1450 on the S&P 500.

     

     

    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 – Super Bowl Hangover

    1. wmateri
      February 4, 2013 8:27 pm at 8:27 pm

      I wouldn’t have thought the metals move was too surprising. Today’s instability started in Europe so the dollar strengthened relative to the Euro. But for anyone who worries about the dollar over the longer term, metals were the only other choice as Abe has made clear his plan to weaken the Yen. I would have thought today’s unexpected move was BBRY up 15% on a bad day for the Nasdaq. But maybe that was too obvious.

      • Brysapp
        February 5, 2013 1:44 pm at 1:44 pm

        Valid point. My statement regarding the metal “surprise” was simply that the euro got hit hard, yet metals rose slightly. It’s tough to interpret those sort of things in a vacuum, and perhaps the yen news was more relevant.

        The BBRY move was on the news of good first weekend sales of the Blackberry 10 in the UK. That, and everyone under the sun was shorting the stock last week as a “sell the news” play and got trapped.

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