An Unconvincing Rally

An interesting day, to say the least. It feels somewhat slow and choppy, but every little sell-off has been bought and any test of volume-average weighted price (VWAP) has been bought. I find this interesting because the yen is flat, bonds can't seem to get off the floor and volatility is still well off the lows while the S&P 500 motors to new intraday highs. The rally does not have me convinced. Buying breakouts and shorting breakdowns has not worked well intraday, so I would be cautious about chasing the new intraday highs and holding them overnight.

M&T Bank (MTB) Source: StockCharts.com View Chart » View in New Window »

But I will look at breakouts on a daily chart. I've been watching M&T Bank (MTB) for a while. It pulled back a bit on the recent sell-off in equities but is back to 52-week highs today. The price is breaking out and while stochastics and the Relative Strength Index (RSI) trail a bit, they are still rising and have room to move higher. MTB could run as high as $111 from here. I am playing the July $105-$110 call spread at $2.30 to get long. This has about a 1:1 risk vs. reward and has a bit of time premium in it, so there is risk if the stock stays flat. If I were buying the stock outright, I'd put a stop just below $103 if there was no downside protection. Another option would be to collar the stock by selling the July $110 call against 100 shares and buying a July $100 put. There would be a net credit around $0.30 with this strategy, although there is a bit more downside risk than upside reward. MTB only carries a beta of 0.79, so I feel a bit more comfortable with the collar idea, even if the market continues its volatile ways.

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