Market Bounces Back as Oil Slides

Earnings are continuing to come in left and right. The Chemicals (CF and MOS) are pushing up, with CF leading the way. Steel is getting a big push from the X earnings. CL is in a strong Bullish Kicking Pattern after earnings. Sony gapped down after earnings, and VLO is down after earnings. The two areas I expected the biggest moves were Chemicals and Steel, those will probably stay momentum areas for a day or two.

The Dow has short term resistance between 11,285 - 11,300. The SPX has short term resistance at 1,253 - 1,254. The two indexes appear headed towards those areas. If I see a nice setup intra-day, I will pick up some puts on the DIA and SPY. I'm also watching X and CF for some momentum plays. Today was the reason I got out of my puts yesterday, and I'm glad I did.....You just never know with Earnings Season day to day. Now, if I want, I can get the same puts almost as cheap as yesterday. The good news is we're almost through the most newsy period of earnings, so next week I will be willing to hold more positions overnight.

8:20 am MT: I picked up calls in Papermoney on X and the stock took off, so I sold them for a 7% profit in about 5 minutes. I put the same order right back in to pick it up again if it pops back down. I also picked up calls on AKS. I wanted to pick up CF but the spreads are too wide, and nothing else in Chemicals excites me right now. I'm also keeping an eye on DIA and SPY puts. We shall see what the day brings.....

Here is the journal recap of my trading day:

10:30 am MT: The market is at a critical tipping point intra-day. This is exactly the area I was projecting this morning, and we got here on a nice Bear Flag on the 60m charts. I picked up a little more calls on X and AKS, and I’m contemplating puts on DIA and SPY. If the market doesn’t hold the bullish move today, right here is the place I would expect it to give it up.

11:00 am MT: I sold the AKS calls for a very minimal profit. I also stopped out the LMT calls for a .25 cent loss on a 2/3rd – size position, or a loss of $175. I sold the X calls again for a .60 cent profit or 4% gain. And I sold the WHR calls for a .18 cent profit or 4% gain. I also nibbled on DIA and SPY puts. I want to trade the X and AKS calls again, but I’m going to watch how the market holds up for the next few hours first. I’m watching and positioning in case this rolls over and continues the downswing from here. I also still want the LMT and WHR calls, but I think I can get them a little cheaper.

11:10 am MT: The market pushed up today on a positive Financial sector news bogeys, as opposed to yesterday’s negative Financial sector news bogeys…..So the fun and gun Financial sector is up to its same old tricks for the year. It’s like watching good cop bad cop, it might make you a little crazy, but at least it’s entertaining…..

The other two key drivers today are the relatively decent earnings reports and the drop in oil prices. Oil appears to be dropping today more on the “Strengthening Dollar” than on the “Slowing Global Economy”, so that’s all exciting…..or not…..It does appear that speculators are getting shaken out of oil futures to a certain extent. My guess is that about one third of the speculation has come off the top of oil now.

1:00 pm MT: earlier I nibbled back into the X, AKS, and WHR calls. I’m also probably going to sell the DIA and SPY puts at breakeven before the end of the day. I don’t mind holding the Steel and Cyclicals overnight, but I don’t want to hold the puts overnight.

I mentioned several times going into the week and yesterday about watching out for the Financial and Oil sector news bogeys. Yesterday we got the Financials negative news bogeys and down the market went. Today we got positive Oil and Financials news bogeys and right back up we go. I’m not going to fight the potentially extreme freneticism of traders and force some DIA and SPY puts against their collective emotion over falling oil prices, despite the fact that I just paid $4.13 a gallon this morning to fill up and the main reason (not the only reason, but the main reason) oil is dropping is because of slowing demand, which means slowing global economy, which means…..well, you get the idea.

1:10 pm MT: I sold the DIA and SPY puts for small losses of .05 cents and .10 cents respectively, and both positions were half-sizers so pretty much a scratch trade.

1:20 pm MT: I picked up more X on the little intra-day pullback. I’m watching to pick up some more AKS. I like X on a move back to 170, which is key resistance, but if we punch through that tomorrow then the stock can easily move another 3-5 points or more. It’s an extreme move today, but then again we live in an extreme world…..

I’m also looking to finish out the WHR position just before the close because it’s confirming today.

1:50 pm MT: I picked up the rest of my WHR calls. In addition, I picked up some more AKS. I also picked up some calls on UNP, NSC, and FDX. There are some interesting bullish movers today in Financials, but I just don’t have the stomach for that news-ridden sector right now. We’ve had news bogeys on the Financials every day this week and I don’t know about you, but I’m getting tired of hearing about every tiny thing to do with the sector. I don’t want to know the shade of green of the spinach caught in the teeth of the CFO for JP Morgan after his afternoon gourmet salad…..When we start hearing all the news about the flavor of the slurpee that the mail clerk for Lehman Brothers dropped on the floor of the break room at 3:59 pm Eastern Time while trying to eat a corn dog as he walked to the North East cafeteria table situated 12.7 feet from the Eastern load bearing wall along the windy side of the building…..well….I’ve got to say it’s a little much. I guess since we live in the information age, and news sells…..then obviously you can never quite sell enough of it…..by the shovel full…..

Back to trading and the call positions I took towards the end of the day: you know the routine by now, if we get a substantial gap up in the morning, I will sell all the calls into the gap. If we wiggle out of the gate I might add a little to the positions - if the market holds tough, and then look for another leg up in the swing to sell into.

2:00 pm MT: I finished the day with $390 in profits and $280 in losses for a modes net gain of $110 on all closed positions. Today wasn’t so much about making money as it was staying in the green while I turned on a dime and went bullish from a bearish posture and positioning. When you get a tipping day like this, it’s easy to lose a lot of money if you don’t turn the boat around and head with the tide when it shifts. I picked and pecked and watched and traded until I got in tune with the move. Now, if the market carries through a little Wednesday (and perhaps Thursday), the positions I transitioned into today should make a decent profit tomorrow.

2:30 pm MT: Market Wrap: The major indexes finished with Bullish Engulfing/Breakaway - hybrid types of patterns today. The Dow and SPX look like they want to slide up some more, possibly even swing up towards their 50-day moving averages. The Naz also looks like it could move towards its 50dma. The Naz movement day to day the past six days has gone like this: gap down and then rally back to close up, then an up day, then down hard, then back up strongly, then down hard again, then up sharply today. You don’t get much more split-brained then that. On the other hand, the Dow and SPX and many of their bullish sectors (Financials, Cyclicals, some Commodity-based, Leisure/Casinos, Transports, Railroads, Defense, and a few other areas) look fairly solid for another 1-2 days of upward movement. The 1-2 day move would put us right into Thursday, which times out perfectly for the Employment Report/ISM ultra heavy-hitter economic report day on Friday before the open. So I will probably run the calls from now until Thursday afternoon at the latest (if it goes that long), and then get out and sit on the big news morning Friday morning. Of course, a Financials or Oil news bogey could change all that…..but if we don’t get any goof news, then this move probably times out to Thursday afternoon.

Just as a reminder, I used this same type of strategizing yesterday. I stated for several days to watch out for the earnings on Monday night and Tuesday morning, and to watch out for a Financials or Oil news bogey. Which was exactly why I took my DIA and SPY puts day to day on Friday and again on Monday. That ended up being the perfect call as I made over $2,000 on the DIA and SPY puts total on those two days, and then got out. If I had carried those positions overnight, the profits would have gone right into the toilet today.

Here are some interesting Bullish Movers from today:

Steel: X, AKS

Financials: STI, HIG, PNC, RKH, STT, PRU, ADS, GS

Coals: WLT, ANR, FDG

Railroads: UNP, NSC, CSX, BNI

Transports: FDX

Leisure/Casinos: WYNN, CCL

Chemicals: CF

Defense: GD

Cyclicals: WHR, GR, CAT

Also Note: CL, PCAR, STJ