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Daily Game Plan: Waiting Game


Bonds are flat for the day, and metals are getting hit once again.

Market Check

After yesterday's afternoon turmoil, markets have absorbed those losses and are moving higher as of 2:15 p.m. EST. While everyone remains fixated on the vote for Speaker Boehner's "Plan B" solution to the fiscal cliff, equities are near the highs of the day. At current levels, the Russell 2000 (INDEXRUSSELL:RUT) is once again leading, up about 0.5% on the day. Technology is a relative laggard, as the Nasdaq Composite (INDEXNASDAQ:.IXIC) is up only about 0.2%. Bonds are flat for the day, and metals are getting hit once again.

Rumors have been circulating that investors in John Paulson's hedge fund have been urged by Morgan Stanley to redeem their assets, and the sell-off in metals is largely a result of that. Paulson is notorious for his enormous bullish bet on gold, and if this is true, he is likely lightening up on his long position to raise cash. Keep a close eye on SPDR Gold Trust (NYSEARCA:GLD), as there exists the potential for great short-term trading opportunities on both sides of the market.

Chart of the Day

Penn National Gaming (NASDAQ:PENN) has had a nice year, up about 30% since January. In mid-November, PENN announced the it would be restructuring its business model, and the stock saw a huge one-day rally. Since then, PENN has consolidated near the 50 level, site of former resistance in early 2007. While the stock remains strong, skepticism toward it continues to grow. At current levels, nearly 8% of PENN's float is sold short, and overall short interest has grown by 15% over the past month. This creates the potential for a strong short-covering rally should PENN take out the key 50 level. A rally back to 60 in a month or two seems like a distinct possibility. A close below 47.50 would be a sign to exit the position.

Click to enlarge

What I'm Expecting

A continued grind higher. Starting tomorrow, markets will be very slow as we approach Christmas. Volumes should be very light next week, and there isn't much data to be released on the economic front. There's an old market mantra: "Never short a dull market." This seems very germane, given what will transpire over the next few weeks. So long as we remain above the 1425 level on the S&P 500 (INDEXSP:.INX), I don't see any reason to get involved on the short side. Many people are talking about the fiscal cliff being a risk, but in my opinion much of the potential bad news has been priced in for some time now.

Overhead, there are multiple resistance levels, including 1450, 1460, and the 52-week highs of around 1475. I wouldn't expect new highs by the end of the year, but anything is possible as funds could chase performance into 2013. Also, any sort of solution on the fiscal cliff front could spark some exuberance and markets can often times overreact in either direction, especially when volumes are light as they'll be for the rest of the year.

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

Below, find some more great content from Schaeffer's Investment Research:

SPDR Gold Trust – A Technical Breakdown Worth Noting

Dow Jones Industrial Average Poised for Gains Ahead of Economic Data

Traders Place Short-Term Bearish Bets as Merck Retreats

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