• Daily Game Plan – Teflon Market

    by  • March 18, 2013 2:09 pm • Broad Market Analysis, Bryan Sapp’s Daily Game Plan, Charts to Watch • 0 Comments

    MARKET CHECK

    News of a potential bank run in Cypress weighed heavily on futures overnight, as many people were fearing potential contagion and lack of confidence in the European banking system.  Near their lows overnight, S&P 500 Futures were off nearly 2%.  However, as we’ve seen seemingly every time the market has dipped, buyers have once again stepped in and driven us significantly higher.  Nearly the entire overnight move has been reversed, as the S&P 500 is now down only 0.3% on the day.  Today’s relative winner is technology, as the Nasdaq is being led higher by AAPL, which is up over 2% on the day as the NDX is near breakeven.

    One potential concern for bulls is the continued strength in bonds despite equities recovering.  Currently, bonds are up about 0.5% on the day despite stocks rallying sharply.  Additionally, gold and silver are holding their bid, each up nearly 1% on the day.  Watch these other asset classes closely to confirm that we have successfully shaken off this potentially bad news out of Europe.

     

    CHART OF THE DAY

    Illinois Tool Works (ITW) – ITW has been on a tear, recently breaking to new all-time highs and consolidating since then.  The shares recently pulled back near the 60 level, key resistance from 2007 and 2011, and have bounced.  This indicates potential support going forward, and offers a nice risk/reward profile for a long entry here.

    Despite the recent strength in ITW, sentiment remains mixed.  Of the 16 analysts covering the equity, 7 have it rated a “hold,” with one “strong sell.”  This creates future upgrade potential.  In addition to this, short interest is up nearly 17% from two weeks ago.  These newly-found bears could find themselves trapped should ITW continue to rally, and be forced to cover their positions.  These shorts represent potential future buying power on the sidelines, and could spark the next leg higher in ITW.  I like an entry here with a stop on a close below 60.  I would initially target the recent highs near 65, with 70 and beyond as a stretch target.

    courtesy of stockcharts.com

     

    WHAT I’M EXPECTING

    Given the fact that the S&P 500 briefly traded below 1550 this morning and bounced back above that level, it’s remains hard to doubt this rally.  Also, there is a Fed meeting that starts tomorrow, and the days leading up to the policy statement are generally very bullish.  I would look for markets to press back toward the recent highs we made last week and potentially a run to the all-time highs.

     

     

    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/

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