Daily Game Plan: News-Driven Tape

Schaeffer's Investment Research
  NOV 28, 2012 2:58 PM

Domino's Pizza has been very strong this year, up about 30% year-to-date.


Indexes are all over the place today, and seemingly every new bit of “news” or rumor that surfaces regarding the fiscal cliff has a dramatic impact on markets.  The S&P 500 (INDEXSP:.INX) has traded in a 20-point range in about four hours’ time, and indexes are currently near their highs of the day.  At current levels, technology stocks are leading the move higher, and all major indexes are about 0.4% in the green.  Despite this bullish move, commodities remain in the red and bonds have a small bid.

This erratic price action began yesterday afternoon, when Senate majority leader Harry Reid declared that little progress had been made toward resolving the major issue at hand.  At that time, his commentary caused about a 10-point sell-off in the S&P 500, and its effects lingered this morning as we gapped lower on continued worries.  Fast forward to about 10:30 this morning, where Speaker of the House John Boehner made public comments stating that he was optimistic that a deal with President Obama and the democrats could be reached.  Markets responded very favorably, and rallied sharply to their present levels.  Net/net, markets have gone nowhere since yesterday afternoon.  However, it’s been a roller-coaster ride since then.
Chart of the Day

Domino’s Pizza (NYSE:DPZ): DPZ has been very strong this year, up about 30% year-to-date.  While it underperformed the indexes until mid-summer, the equity has played a quick game of “catch up” since mid-June.  Over the last six months, it’s up nearly 50%.

A little over a month ago, DPZ reported better-than-expected earnings and the stock soared by about 10%.  Since then, it has continued to test the 42 level, which it has failed to break through multiple times.  Generally speaking, the more times a support or resistance level is tested, the more prone it is to eventually breaking.  Keep a close eye on this, as a break above could spark some short covering and lead to a dramatic spike higher.

What I'm Expecting

While my bias remains to the upside, the past eight hours of trading are evidence that it could be an eventful ride over the next couple weeks.  Given the potential for many new news developments, rumors, speculation, etc., anything is possible.  The current environment is eerily similar to the height of the eurozone crisis, where every new headline would result in 20 point moves in the S&P 500.  If you are actively trading this market, be sure to have stops in place and defined risk on every position.

This article by Bryan Sapp was originally published on Schaeffer's Investment Research.

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