Market Rolls Over

Note: For those of you who received my Continuation Pattern Search document: On the screenshot of the Power Prosearch there is an error that Troy caught. Stock Price should be In Between (as per the directions I wrote on constructing the search in the document), and not High As Possible. I corrected the screenshot and will re-email out the updated file to all of you tomorrow. If you follow the written directions those are correct, but I wanted to make sure the visual is perfect as well, so expect the new file tomorrow.

Pre-market Futures are down after AIG missed expectations. Once again, Financials are front and center as that sector still continues to write down credit market losses. AIG has now lost more than $40 billion dollars in writedowns. The stock is down 11% in pre-market trading. WMT is also down a little as the company came short of expectations for July same store sales. The final blow this morning is the price of oil, which is up over $120 a barrel and climbing towards $121.

It looks like we are headed for a consolidation day at the very least. It may be pretty tough for traders to simply shake off this morning's news and push the Dow up through 11,700. I didn't hold much in the way of calls overnight (as usual) and as usual, I'm glad I didn't. Traders don't like uncertainty, and every time it looks like Financials have stabilized a bit the sector puts out another news bogey. It may be that the bulls simply shrug off the news and climb a wall of worry, but those odds are a lot slimmer today than they were yesterday. The news that will help the most is if oil turns right back around and retreats towards $116. But the stock charts in Energy and Commodities yesterday were suggesting another 1-2 days in an oversold bounce, so it may be the overall market needs to consolidate today.

If bulls take back over mid-day today like they did yesterday, I may pick up some calls again, but I need to see price action hold up this morning with some decent relative strength in order to do that. I'm not to keen on puts just yet either, so I may be sitting on my hands for a few hours while traders slosh and toss, and churn and burn, and figure out which way they want to take the market.

7:30 pm MT: Market Wrap: The Dow and SPX confirmed rollovers and are headed back towards the lower diagonal line on the recent Triangle consolidation. AIG started the fun with a worse than catastrophic earnings report, which isn't easy to do, so congratulations to AIG's management team.....Citigroup added to the discontent in Financials after agreeing to settle allegations about misleading investors.....Retailers piled on the love with worse than expected July Same Store Sales. Weekly Jobless Claims rose to the highest level in six years hitting 455k versus the 420k expected. And finally, oil climbed to almost $120 per barrel. You pretty much couldn't news bogey the market much worse than that.....

Two interesting things about the day. One is that it didn't sell off harder than it did, and two that oil retreated several dollars off the high. Those two events are correlated in my book, and the main reason that selling wasn't worse than it was. The price of oil continues to be the number one catalyst behind market movement lately.

Tomorrow, before the open, FNM reports earnings. If the company does a better job than FRE (and AIG) and actually meets the catastrophic expectations, then the Dow might wiggle back to 11,500 out of the gate in the morning. If the price of oil stays in the $119 area early in the day, then that scenario is all the more likely. There could be a nice setup for some DIA puts (or SPY puts) at that point. I may watch for an intra-day test of the 115 area on the DIA and pick up some puts. If oil climbs a bit into the low $120's again, like today, then the DIA (and SPY) will probably roll over and head towards the 113.50 - 114 area. If oil drops below $118 then I would be cautious, and if it drops below $117 then I would probably be stopping out of my puts. Unless we get a drop in oil to the $116-$118 area, I'm not looking for a bullish day on the market tomorrow. It's possible that FNM blows us away, or we get an intervention news bogey by the Fed or Government, but outside of that, I can't see the market getting away from the current high correlation to oil prices.

Here is a chart of the Dow to give you a visual of where traders are taking things:
(click on image to enlarge)


Here is a chart of Oil to give you a visual of short term support and resistance, and how a little wiggle might effect a DIA put trade:
(click on image to enlarge):

Some Final Notes: I can't see any scenario where I want to hold any of my short swing trades over the weekend. So I'm playing how I have been playing most of the year, which is short swings that I keep intra-day on most of the position for my directional trading, and Iron Condors for my intermediate term type of trading.

8:30 pm MT: I have emailed the documents to all of those of you who have emailed me about the referrals program. If you haven't received the files yet, email me again. If you don't know what the program is, see the post below.