Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,594.36, up about 1.25 from Monday’s close. It is near its all-time high and the recent previous high at the beginning of April is now acting as a possible new resistance level within the “trend-channel.” Its upward trendline is not as sharp as it was, but the pattern does go back to November and “the trend is still the trend and can’t be ignored,” according to Michael. It looks to be neither bullish or bearish at this point more neutral within it’s defined channel. It is still above the 50 and 200 day moving averages of 1552.90 and 1460.39.
Nasdaq (COMP) has been hitting higher highs and lower lows that appear to be forming a “megaphone” pattern. This could be a sign of growing instability, according to Michael.
Analysis of Volatility Index from TradeKing’s Brian Overby:
S&P 500 Volatility Index (VIX) – The VIX is around 13.76, unchanged today. The VIX is finally working its way off the yearly lows and is now trading very close to its 50 and 100 day moving averages of 13.78 and 14.32, as well as below its 200 day of 15.28. It is showing a little less complacency in the market; it could be that earnings season and market all time highs has been the cause of its levels lately.
The Chart of the Day is Bristol-Myers Squibb (BMY) – At the time of this broadcast, BMY was at $39.59, down about 32 cents on the day. Support from a recent uptrend has been broken to the downside along with a drop in RSI. It looks to have been in a bearish “evening-star” pattern. It is just above its 50 day moving average of 39.43. One thing that appears to contradict the recent trend, is today it looks to be in a hammer pattern today that might indicate a bullish move. Short term there may be some more “shaking out” coming, according to Michael.
Brian Overby’s strategies based on Michael’s analysis:
BMY’s implied volatility has dropped a bit after earnings was announced on April 25th. Both implied and historical are between 15-20% range and reversing course with the historical volatility headed to above 18% and the implied dropping to just above 17%. Since BMY is down already today and Michael is a looking for a small bounce up before getting short, we will start with a simple trade that can be done if we can get the “bounce” in the near-term. So, we are waiting a day or so before entering a long put. If you are thinking the short term downward move is going to continue a speculative 3-day spread is an alternative trade. It is an all-or-nothing strategy looking to risk 42 cents to try to make 58 cents if the stock continues down to close below 39 in three days time.
Brian’s Potential Trade Strategy #1 – Long Put
– Buy 1 May 18 2013 BMY 40 Put Bid 0.60, Ask 0.64, Mid 0.62
– 18 days to expiration
– Total debit is $0.64 if we get filled on the Ask.
– Maximum potential loss is $0.64. Breakeven $39.36
– Maximum potential gain is $39.36 if BMY goes to zero before May 18 2013 (unlikely)
– Total commission to enter this trade is $5.60
Possible Alternative #2 (Speculative) Trade – Long Put Spread
– Buy 1 May 3 2013 BMY 40 Put
– Sell 1 May 2 2031 BMY 39 Put Net Bid 0.37, Ask 0.42, Last 0.40
– 3 days to expiration Breakeven $39.58
– Total net debit of $0.42 if we we get filled on the Ask.
– Maximum potential loss is $0.42 – Maximum potential gain is $0.58
– Total commission to enter this trade is $6.25
**NOTE: option prices are given as a per contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.
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