Market Pauses Before Next Move

Oil is down slightly on a wiggle up in the Dollar and the market appears to be pausing briefly after the strong reversal yesterday. Traders may be taking a quick breath before the next move. The Economic calendar starts heating up a bit tomorrow through Friday, and traders may be eyeing Durable Orders, Oil Inventories, Weekly Jobless Claims, GDP, and Personal Spending to get a feel for economic conditions. I don't expect anything in the reports to be a huge surprise, so I'm playing the stock market to finish out the current technical move down.

The only thing that would have me cautious on my puts today would be a big drop in oil or a move above the 11,500 area on the Dow. Otherwise, I will continue to nibble away on puts. If momentum picks up to the downside then I will add to the puts, but I'm keenly aware of the possibility of getting a little choppy. So I will probably only trade a few positions, and I will probably only hold small positions overnight.

8:00 am MT: I started nibbling on calls for DVN, SWN, and EOG. Oil is bouncing strongly this morning after hitting $112.50, and it’s bouncing despite a rising Dollar. The stock market got a brief boost from the drop in oil early in the day, but if oil keeps rallying it will probably put pressure on stocks. The price action in stocks and oil is a little wild on the intra-day charts, and a little choppy on the daily charts, so I’m not taking very many positions, and I’m not taking very big positions.

9:00 am MT: I’ve been kicking the tires a bit looking for catalysts behind the oil move and there really aren’t any. That means that this is probably a technical move and oil may be basing a bit along the $112 - $112.50 area. I think stock traders are starting to look at oil as holding this region for now, which is why the market is chopping a bit and why it dropped yesterday. But there is not much conviction from traders, which also means that even if they think $112.50 holds for now, the signals are muddy, so volume continues to be extremely light. There appears to be a good degree of uncertainty over what the market and oil are going to do next, so I’m seeing some sloshing and banging on the intra-day charts and a little choppiness on the daily charts.

1:15 pm MT: I added a little to the SPY, DIA, and Q’s puts. If the market drops down tomorrow morning, I will sell the puts. I’m targeting 113 on the DIA, but I may hold some of the position for a possible drop to 112. The SPY has downside potential to 125, but it may battle with 126.50 for a bit. I don’t want the SPX going above 1,280 and the Dow going above 11,500, otherwise I will stop out of the puts. The Energy calls look fine. Any bump up tomorrow and I will start scaling out.

3:00 pm MT: Market Wrap: Oil seemed to put the market in a pause today. Oil did test $112.50 as I speculated it would from Saturday’s post, but the test was short-lived, and prices bounced back strongly intra-day and ran up into the $116’s. Except for the Thursday – Friday anomaly, oil has stayed range-bound for two weeks between the $112 - $112.50 support area and the $117.50 resistance area. We’ll see if the Oil Inventory Report tomorrow morning causes oil to move outside the range and start trending again. If Energy stocks bump up out of the gate tomorrow I will probably sell most of the Energy calls before the report, which comes out 60m after the open. The Naz dropped right into the support zone that I pegged on the chart yesterday, and the SPX is battling with the short term support zone between 1,261 and 1,263. The Dow is dangling in no-man’s land above the 11,300 short term support. If the Dow drops through 11,300 it’s probably headed to the 11,200 area. We’ll see how the battle in the markets goes tomorrow.....

Note: I got caught up on answering comments and questions from yesterday and today.