Market Gets Another Leg Up on Oil

No news is probably good news as traders quietly comes back to work Monday morning. With such strong price action late last week, it's not surprising investors are trickling in. There are no key economic or earnings reports scheduled Monday or Tuesday morning. This brings the focus even more clearly on the focus all along, the price of oil. Oil is up a little pre-market on the supply disruption concerns over the Russia/Georgia conflict.

Just like Friday, you would do well to keep one eye on the oil chart along with one eye on the stock market for clues about direction today. The tone may be muted this morning, but as long as oil prices stay down, then their should be some bullish carryover from last week before we see a swing consolidation.

8:10 am MT: I sold the AMZN calls into the spike up this morning for a nice profit. I also sold the KSS and MMM calls into the spikes up this morning. I picked up URBN when it wiggled out of the gate and I’ve already sold part of the calls for a profit. I also picked up some DD calls.

The AMZN trade was a 1.24 profit or 24% gain. The KSS trade was a .68 cent profit or 17.5% gain. And the MMM trade was a .35 cent profit or 8% gain. I also locked down part of the URBN calls for a 19% gain so far.

I’m looking at Retail, Leisure Spending, and Cyclicals this morning. I may trade back into those areas again after a mid-day pullback. The market indexes may be getting tapped out short term, so I’m watching those closely. The Light Sweet Crude chart is working exactly opposite the SPX, and I may pick up some SPY, DIA, and maybe some Q’s calls. It’s a little tricky over there because I’m seeing some Broadening patterns on SPY and DIA, and I’m not a huge fan of trading into Broadening patterns.

8:45 am MT: After the initial flurry of buying in Retail and Leisure stocks the market seems to be quieting down. I sold the last of the URBN calls for a total trade of .23 cents profit or 9% gain in an hour. I am done with URBN, and Retail is looking parabolic, but I may do one more short swing on AMZN, maybe…..Retail is very extreme this morning.

9:15 am MT: The Naz leading the way and is getting pretty close to its 200 day moving average. The SPX is following a bit, and the Dow is lagging the other two indexes.

9:45 am MT: Oil is breaking down, which is giving the market and Retail/Leisure a boost.

10:00 am MT: The extreme buying in Retail is continuing and if it was red hot before, it’s white hot now. I sold the DD calls for a .30 cent profit, or 10% gain intraday.

1:50 pm MT: I picked up some AMZN calls mid-day and sold them in the last hour. I updated the total trade on AMZN today to a profit of 1.59 or 31% gain. I bought back in to a small position on AMZN again just before the close, which I will sell into any type of early bump tomorrow morning. I made a total of $1,580 in profits in the Papermoney account today, although I left several thousand on the table because of the extreme moves on AMZN and KSS.

2:30 pm MT: Market Wrap: Oil dropped through Friday’s low and off we went with the market again. The inverse correlation between the stock market and the price of Light Sweet Crude is pretty tight these days. I’m not surprised that we followed through today, I was playing it that way from Friday, and I stated on this blog to watch for a bump Monday-Tuesday (and my Watchlist was geared towards that type of movement). I’m also not surprised by the late day profit taking after such a parabolic Flash Bang type of move over two trading days. It’s possible that the market reaches one more time tomorrow, but after Tuesday I’m being cautious on my calls. If the Dow drops below 11,700 then I’ll be standing back and waiting for the next idea.

The Naz went exactly to the downtrend line I drew for you on Saturday’s post, and then pulled back. The Naz and the Russell 2000 are, by far, the strongest of the major indexes right now. There hasn’t been anything new to the theme lately: Retail, Leisure Spending, Tech, and Cyclicals were up, and Energy and Commodities were down. However, Energy and Commodities might start getting a little noisy, and a short term bounce over there will consolidate all the other sectors I have been playing calls on the past two weeks.

There aren’t any noteworthy economic or earnings announcements tomorrow, so Tuesday could still see an early reach up in the markets, but I’ll watch that close for a late day fade. We will get more noteworthy corporate earnings on Tuesday after the close: AMAT, NVDA . Then Wednesday before the open: DE. We also get a more noteworthy economic report on Wednesday before the open with Retail Sales. Thursday brings CPI and Initial Jobless Claims. So if the price of oil stabilizes a little tomorrow, perhaps later in the day, then traders will focus (briefly) on earnings and economic reports for Wednesday and Thursday’s sessions. Oil may be mostly priced into the short term swing, with the possibility of some more wiggle tomorrow. Ultimately, oil could drop to the $100 area, but on the current downswing oil may find support between $110 - $115. In other words, we may have enough wiggle down in oil still on the current swing to wiggle up the markets a little more, but most of the swing has probably been priced in, and we may have to wait for another downswing next week to get to $100 - if it happens.

Here is a chart of the Naz showing how it hit right on the resistance line I drew for you, and closed right at the 200dma:
(click on image to enlarge)

Once again, keep one eye on the chart of Light Sweet Crude, that has payed off nicely the past week for stock and options traders.