Ben Jovi Leaves the Market Alone so it can Rock On

Pre-market futures are up this morning on another drop in oil prices. It won't be surprising to see many of the oil stocks that sold off yesterday gap down at the open today, which will be an opportunity to sell most of the puts in Energy left over from yesterday. Look for good intra-day setups in that sector before entering new positions. The tail-end of the heavy portion of Earnings Season is still giving us less than catastrophic results, so we have a continuation of a common theme from the past three weeks this morning.

The biggest deal today will be the Fed, although most traders are assuming a non-event. Market action will probably be somewhat quiet ahead of the announcement at 12:15 pm MT / 2:15 pm ET. So although the market will probably be quiet, and then pick up in volatility after the announcement, it probably won't be as subdued as it might have been because traders are assuming no rate change or language change and therefore are more focused on the price of oil.

Here is a recap of my trading day:

7:35 am MT: The major indexes gapped up this morning and the Dow and the SPX held the support line of the Triangle. I thought we would go tight, and that’s exactly why I unloaded my DIA and SPY puts where I did yesterday and didn’t hold them overnight.

7:40 am MT: I nibbled some calls on UNP and NSC this morning. I will probably play these as short swings. Energy stocks gapped down and jumped up right out of the gate just like I warned pre-market. So selling the gap at the open was the proper exit, now you can pick up the puts much cheaper on the bounce up.

8:25 am MT: There has been some yipping about the ISM Services driving the market today because the number was better than expected. But the number was still contractionary, and it wasn’t much different than the slightly better than expected numbers we have been seeing out of many other economic reports lately. The big deal continues to be the drop in oil prices. We have now watched $30 of speculation come off the top of oil since it hit $148 a barrel. I’m guessing that represents about half the speculation of about $50-$60 that was sitting on top of the fundamentals. Real supply and demand is probably in the neighborhood of $90-$100 per barrel. This is typical speculator behavior, which is to take some asset parabolic way beyond the fundamentals and then run screaming on fire through the night to get out when the bubble pops. In this case, I think we are experiencing a short to intermediate term compression in speculation, but not a long-term bubble bursting. I still think oil holds up and eventually bounces because we haven't changed the supply and demand equation yet.

9:35 am MT: Retail stocks are really on the move with the drop in oil prices. SHLD, TGT, KSS and others are making some real momentum moves early. Cyclicals are also doing well. I nibbled on WHR calls, but I haven’t picked up any Retail stocks yet because they ran away from me before I could jump them

9:50 am MT: Railroads took a nice jump intra-day, so I sold half the positions into the move. I will look for a pullback to build the position back. Here are the gains so far: NSC is a .43 cent profit or 9% gain so far, and UNP is a .35 cent profit or 7% gain so far.

The Dow and SPX have already made it back to the other side of the Triangle intra-day (which is easier to do the further the indexes travel into the apex). I first posted the Triangle on Friday and warned you that we would probably go tight ahead of the Fed, and so far we have done exactly that with a drop to the support line and now a jump to the resistance line. I speculate that we won’t break the triangle one way or another until after the Fed, which is also something I warned of several days ago.

10:20 am MT: WHR is getting very parabolic intra-day, so I locked the calls for a .60 cent profit or 11% gain intra-day. I will look for a pullback to get back in to the position. It never ceases to amaze me how frenetic our modern trader is. Never underestimate how much of a dog pile Maverick and Cougar and the rest of the Fast Money can create, those hot dogs just go nuts when they see something. It sure smacks of undisciplined, “get rich quick,” score the Ferrari and the Upper West Side condo, show me the money, now now now trading.....But the good news is that it means more money and faster profits for me.

10:35 am MT: I sold the rest of the UNP calls for a total trade of .40 cents in profit, or 8% gain intra-day. I kept the NSC calls so I still have some exposure to Railroads, and I will pick up the UNP calls again later on a pullback.

10:45 am MT: I sold the NSC calls for a .48 cent profit or 10% gain on the total trade. I can smell a pullback coming.

11:05 am MT: I started scaling back in to the UNP and NSC calls at a cheaper price, and I picked up WHR again. I also started nibbling in to SHLD. I like where I am so far today, we’ll see how it goes with the Fed.....

12:15 pm MT: The Fed was a non-event, back to trading calls.....

12:45 pm MT: I locked in some profits on the SHLD and WHR trades, but I’ll still revisit these for more before the close. I also picked up small call positions on CCL, ADBE, AMZN, ABT, and DHR. Those along with SHLD, WHR, NSC, and UNP will be enough for me today, although there’s a lot more going on out there. I will hold some of the positions overnight, probably parts of all of them.

1:50 pm MT: I locked down some more profits on the SHLD and WHR trades because the two stocks are fairly parabolic intra-day, especially SHLD. I’m only holding a little of those two overnight looking for an early bump to sell into. WHR is one that I will probably be in an out of a lot tomorrow, I really like how it looks. I locked in a 1.07 profit or 18% gain so far on this second WHR trade. I locked in a .50 cent profit or 10% gain on one SHLD trade that I closed, and I locked in a 1.73 profit or 23% gain so far on a second SHLD trade that I still have a small position in.

I made $532 on all closed trades today and a total of $1,265 after adding in partial locks, which I will forward to the closed trades tomorrow. So I really look at this as a $532 day with the table set for a bigger day tomorrow, especially if the market wiggles up a little and then Flags intra-day before the next move.

2:30 pm MT: Market Wrap: The Fed left the market alone, which is just what traders wanted. With Ben Jovi and the Bad Medicine Band putting their show on ice for another six weeks, the market was able to focus on what it really cares about, which is the continued drop in oil prices. Speculators have been compressed down $30 dollars of the approximately $50 dollars of fluff on top of the true fundamentals in oil. So look for the $98 - $105 area as the intermediate term support zone on the chart for Light Sweet Crude, with a possible swing down to $116 area first on the short term. If traders continue to believe that Ben Jovi is going to leave them alone for another six weeks then they won’t be Livin’ on a Prayer, and they might even Have a Nice Day. But if the Rock Star pokes his head in there too much then he could be Wanted Dead or Alive.

The Dow cracked through the resistance line of the Triangle, so you can see why I was buying calls today. The next resistance is 11,700 and then 11,750, but I speculate that the swing takes us through those levels and perhaps as far as 11,900, with 12,000 being a long shot, but possible on this swing. The SPX also broke out of its Triangle with the next resistance at 1,290 and then 1,300. Like the Dow, I speculate that the SPX may go further than that on the short term swing, perhaps as far as 1,310, with 1,320 as more of a long shot. I will take the moves one day at a time and hold only partial positions overnight because this year has been.....well.....this year.....There’s no reason to lose sight of the fact that we are still paying around $4.00 a gallon for gas, even with the compression in oil prices recently. And as soon as the economy picks up, then oil goes right back up and consumer spending softens. We (I guess that’s the royal “we”) still haven’t solved the supply issue in oil. Now if we could just turn some of that Beijing algae into alternative energy we might be on to something big.....

Bejing Algae Plagues the Olympics

Nevertheless, the market looks like it's turning from IT Neutral to IT Neutral to Bullish as the Dow and SPX channel (on the intermediate term) towards the top end of the long term channel. The Naz is ugly, and right at resistance, but at a new 30 day closing high. I speculate the Naz will punch through 2,350 and move to the top end of the intermediate term channel at 2,365-2,375 where it had the nasty gap from a Kicking Pattern at the end of June. The fact that traders continue to kill Gold (AEM, GG, ABX, NEM) like it’s made of radioactive poison lends itself to the moderate bullishness of the markets right now.

Here are the index charts:

Here is a chart of the Dow showing the break of the Triangle:
(click on image to enlarge)

Here is a chart of the SPX showing the break of the Triangle:
(click on image to enlarge)

Here is a chart of the Naz showing the index right at one resistance and then the Channel resistance at 2,365 - 2,375:
(click on image to enlarge)

Here is a list of Bullish Movers today:

Leisure/Casinos/Restaurants: CCL, MCD, WYNN, MGM, (LVS)

Retail: AMZN, RTH, WMT, SHLD, KSS, TGT

Financials: STT, COF, BK, HIG, STI, PRU, MET, NTRS, CB, (MS, PNC)

Transports: FDX, UPS

Tech: ADBE, PCLN, NIHD, IBM REIT’s: EQR, IYR, VNO

REIT's: EQR, IRY, VNO

Healthcare/Drugs/Biotechs: ABT, STJ, MDT, WLP, CELG, AET, JNJ, BAX

Railroads: NSC, BNI, UNP, CSX (I’m not looking for a higher high on UNP, so I’ll be selling into any bump up tomorrow)

Defense: LMT, GD

Cyclicals: MMM, DHR, UTX

Food & Beverage: PEP, (KO, GIS)

Consumer Staples: (PG, CL)

Note: CSCO is up strongly after-hours on a positive earnings report. The stock has jumped more than 7% in after-hours trading. Expect the Naz and the market to catch a tailwind early from the CSCO effect. I speculated earlier that the Naz would punch through 2,350, now I think it's pretty much a done deal. I will probably sell some of my ADBE calls right into any gap up, and I will probably sell my Railroads and WHR into any early bump. But I will be ready to get right back in to ADBE and WHR, along with any Tech stocks I like, on an early pullback.