Daily Game Plan: Gap and Fade

Schaeffer's Investment Research
  DEC 03, 2012 3:30 PM

Small pockets of strength exist in the technology sector, led by Apple, which is up by about 0.7% for the day.


Markets opened higher this morning amid positive comments from Angela Merkel regarding future Greek debt writeoffs.  However, that exuberance faded, as the first half hour of market action marked the highs of the day.  At 10:00 a.m., the ISM Manufacturing number was released, and the reading of 49.5 signaled that the economy may be entering a period of contraction.  As expected, that data caused a sharp reaction to the downside, and indexes currently sit near their lows of the day.

At present levels, the S&P 500 (INDEXSP:.INX) is off by about 0.3%, with commodities slightly higher for the day.  Bonds are flat, which could be a positive sign for the bulls.  Small pockets of strength exist in the technology sector, led by Apple (NASDAQ:AAPL), which is up by about 0.7% for the day.
Chart of the Day

Monster Beverage Corporation (NASDAQ:MNST) – after a tumultuous Fall, MNST appears to be stabilizing.  For those of you unfamiliar with the company, it is a producer of a popular line of energy drinks that has been scrutinized over the past few months.  News surfaced that the FDA was looking into accusations that the beverages caused numerous deaths this year.  Given the event risk now surrounding the equity, many bulls have pulled the plug over the past few months, and the stock is currently sitting near 52-week lows.

The bounce MNST saw on 11/27 came on the heels of positive comments from Goldman Sachs (NYSE:GS) regarding an FDA response to the Senate, where it stated that certain ingredients in the drink are not harmful.  Those gains have held, and MNST is in a bull flag pattern that it is looking to break higher out of.  Short interest and bearish option activity has spiked significantly over the past month, so any further positive news could be a major catalyst to cause bearish capitulation.  Given the dramatic sell-off from the summer, risk/reward is very favorable for a long position here.

What I'm Expecting

More range-bound trading.  The high print of the day on the S&P 500 was 1423.73.  1425 was a key support/resistance level from a few months ago, so a failure here is not surprising.  As a result, we remain in the 1385-1425 range, and you should keep your trading timeframe short and play this zone until we can break out of it.

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

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