SPX & NDX

SPX Daily

The bears finally stepped up today and pushed the SPX down to the 1400 level. This is a tough spot.... on one hand we are at potential support, and anyone who missed the rally up to the highs will be anxious to get involved. 10yr futures rallied up to the high area of the breakdown zone (1.65ish% yield) and never did push above it while S&P futures were pushing into the lows of the day (that's potentially bullish). Short term indicators are also very close to looking ripe for buying.

On the other hand, there are still a lot of intermediate term indicators that are suggesting higher risk is on the long side. I don't get the feeling that we've seen any kind of washout, and I'm not even sure if today qualifies as a decent shakeout. It seems like the Naz Hundo (NDX) is similar to a tree full of bulls that have yet to feel much of a breeze. That could probably be taken bullishly too though, as AAPL and GOOG have barely budged in the last few days.

NDX Daily

When I look at this NDX chart, I get the impression we could see more of a shakeout. 2725 is a high volume zone that would be the first level of potential support if the bears push down again. That would probably coincide with AAPL testing the 630-640 breakout level... and could provide a decent bullish setup.  

S&P futures Hourly

S&P futures Hourly

It looks pretty sloppy, but I see a head and shoulders on that chart that measures to 1392-1395. A quick zip up above 1410 would invalidate it... and that's only about 5 points up from here. Whatever happens, it should be an interesting day.

HuSsY in a tight skirt

Gator's Chart of the Day: HSY

You probably figured out that HuSsY is The Hershey Company but what about the tight skirt?  Check out the Bollinger bands.  They are extremely tight with a width of only 2.2% of the 20 day simple moving average.  (Reminds me of Carol Burnett playing Mrs. Wiggins.)  With the 50 day sma pressuring from below it looks to me like the price is headed higher.

HSY reported earnings before market on 7/26 and the green arrow points to the gap up awarded by investors.  The stock has been basing since then with the skirt getting ever tighter even though an all-time high (73.16) was printed last Wednesday.  This is not a cheap stock.  The forward P/E is 20 and the PEG is nearly 3 but it has good margins and a dividend yield of 2.1%

The Trade
This is a stock that is well suited for a longer term hold rather than a quick trade.  It can be bought right now in anticipation of an upside resolution to the volatility squeeze.  I think it makes sense to sell upside calls against the common.  As of Wednesday's close an October 75 call would collect $50/contract (100 shares is a contract) and if the stock is called away your annualized return is over 16%.  At December expiration if the stock is not called away you have the $50 and the 2.1% (annualized) dividend.  Sell February calls and repeat as long as you like.