Financials and Oil Bounce the Market

Pre-market futures are up big and then some. The SPX futures are up as much as I've seen them in a long while on the Fannie and Freddie takeover news. Since Financials are the biggest sector in the stock market, and since the SPX has the highest weighting in Financials, I'm looking for the bounce in the stock market to be led by the SPX. The Dow will probably be the next strongest mover early in the day, and the Naz will follow the Dow and the SPX. All three indexes are probably going to have a big move right out of the gate.

If European and Asian trading are any type of guideline for what to expect today, then we may see the SPX up as much as 4.00% at some point today. Most of the European and Asian markets are up between 3.5% and 4.5% in reaction to the Financial news in the U.S. markets. As I stated in the previous post, I will be looking for a bullish move today, which may carry through for several days. And I will be focused more on Financial stocks than any other area. Remember to keep this all in perspective, this doesn't change the oil and gas picture, or the consumer spending picture. But traders will be looking at this news as a potential "sign" that the Financial markets turmoil is over.....So a bullish move is on the table, but I'm not going to get completely swept away in the emotion of it all.....I want to see if there are some nice call option opportunities today, and perhaps for several days, and then I will assess it again from there.

7:30 am MT: We had a gigantic gap up on the SPX, just as I anticipated. It’s way, way too hot right now, so I will watch to see how this plays out this morning. There was also a huge gap up on the Ten-year Yield, which shows how much the focus is on Financials. I still don’t think the fundamentals have somehow magically turned completely around because the U.S. government placed Fannie and Freddie under conservatorship. So I’m not a chaser on the gap.

8:00 am MT: The market is in a gap and fade, which may find an intra-day bottom soon. I am interested in some potential Financial stocks as well as SPY and DIA. I went ahead and cherry picked some SPY and DIA calls at about 8:02 am MT. This looks like the first bounce point intra-day.

8:20 am MT: This is the first test on the intra-day charts. If the market doesn’t hold here, then it could take another hour or so to find an intra-day bottom. Oil is adding volatility to the morning as futures traders fixate on Hurricane Ike. The price of oil pushed up briefly towards $110, which put more weight on the stock market’s early fade off of the gap. Now oil has dropped back down into the $107 area. This kind of wacktivity (wacky activity) is probably going to go on for several days until Ike is sorted out.

8:35 am MT: I added to the SPY and DIA calls. This looks like the first turning point intra-day. I also nibbled on some MS calls.

9:00 am MT: I nibbled a little more on MS calls. Here are some interesting stocks I am watching:

Financials: MET, JPM, STI, RKH, PNC, MS, NTRS

Railroads: BNI, UNP, NSC

Transports: UPS

Cyclicals: IR, KMB, MMM, ITW, WHR, PCAR

Defense: NOC, RTN

Food & Beverage/Consumer Staples: KO, PEP, PG, CL

I’m especially interested in KMB and WHR this morning, besides the Financials. Retail is hot, but too hot right now, so I may just leave it alone. I nibbled on KMB and WHR calls.

9:15 am MT: I nibbled on some STI calls. The biggest news bogey of the morning was the rumor that UAUA filed for Chapter 11 bankruptcy. According to CNBC the report is untrue. It looks like someone rumored the market.....I wonder who was short the stock and getting killed recently.....If the rumor was just a rumor, you can bet the SEC will be opening an investigation today.

On a positive note, WHR looks very strong so far, I may add more to the position later in the day.

10:30 am MT: I’m not super excited about the volatility in MS, so I sold the calls for a small .12 cent loss. I don’t want to play around with that stock right now, it needed to show more intra-day strength for me to stay interested. I still like the STI calls in Financials, but I’m still of the same opinion that I was going into the day, I don’t want to get loaded up on this bounce just yet. I’m only a medium believer right now, not a strong believer.....

12:45 pm MT: Oil dropped to new lows intra-day, which is helping prop up the stock market. The Naz and Tech stocks are lagging the overall market, just as I warned. Today is not a clear-cut runaway bounce, it’s still volatile and mixed. I am nibbling here and there, but this could all break down in a hurry if traders get tired of Financials.

1:00 pm MT: I sold the WHR calls for a 1.70 profit or 35% gain intra-day. I’m bullish on the stock, but I like the gains and I’ll see if it pulls back a little before the end of the day. I’m not keen on holding a lot of positions overnight, as usual, so this begins the scaling out process.

1:15 pm MT: WHR quickly pulled back a dollar, which I had anticipated. So I nibbled back in to the same position 6% cheaper than I just sold it. If the stock holds up into the close, I will probably add a little more. This is one trade I don’t mind holding a little overnight.

1:30 pm MT: WHR took off again, so I sold the calls for another .90 cent profit or 15% gain in a few minutes. I’ll look for a pullback to take a small position overnight. I nibbled on calls for PG and PEP. Those are positions I want to hold overnight as well.

1:40 pm MT: I sold the SPY and DIA calls after several trades scaling in and scaling out. At the end of the day I was up only .09 cents due to the deeper than expected intra-day pullback. So my $90 dollar gain was pretty minimal, but I kept it green so my other trades wouldn’t take a hit. I also sold the STI calls for a nice .80 cent profit or 21% gain. I don’t feel like holding any financials overnight, even though STI looks really nice as a breakout, and might still run another couple of dollars.

2:00 pm MT: My total profit on the day was $834, which was right in line with what I wanted. I knew I wasn’t going to come in this morning and open up the barn doors and whale away on call trades. So this was a nice little day of trading. I’m also positioned well for tomorrow with three trades that I’m carrying overnight (KMB, PEP, PG), and I have an idea of what stocks I want to look at in the morning. I thought we could get a bounce today and tomorrow, which I warned about on the past post, and so far I’m taking advantage of the move pretty much the way I wanted to. I would probably have done more today if we didn’t get such a gigantic gap at the open on the DIA and SPY, that really limited what I wanted to do. Nevertheless I was able to pick and peck and punch a little here and there and walk away with more money and nice positions for tomorrow.

3:00 pm MT: Market Wrap: The SPX and Dow finished with nice bounces today, which didn’t tell the whole story. Both indexes in essence gapped out of the gate, although it won’t show as a gap on the daily charts because the chart processed the open as a big move in the first minute. Now, that wasn’t really what happened, because, for instance, the Dow showed a move of 250 points in the first minute! So what really happened, and what shows up on the DIA and SPY is a big gap and then a fade throughout the rest of the day until a final-hour rally took the Dow and SPX back near the highs of the day. The net result on the daily charts for the DIA and SPY is a Hanging Man type pattern, which differs significantly from the Morning Star/Hammer on the Dow and SPX. The Naz showed the gap and fade more realistically than the Dow and SPX. Any way you slice it, the market did bounce, but I’m not looking at this day as a sign that suddenly the Financial sector and Housing sector woes are over. However, I did view the day as a short-term bullish bounce, which I played accordingly.

Oil gyrated around quite a bit today, which was expected ahead of the Hurricane Ike uncertainty. Once again, a warning on the media, do your own homework on how things are really going with the Hurricane. The media headlines want you to believe it’s the end of the world, which dovetails with their own agenda. Hurricane Ike actually dropped a category today, which is probably why oil actually finished near the lows of the day. However, hurricanes are not entirely predictable, so oil traders will continue to gyrate and churn, and the price of oil will stay volatile on a short term basis, until traders are more certain about Hurricane Ike and the aftermath.

As it stands for tomorrow, I like Cyclicals, some Financials, a little Retail (I would like Retail more if it wasn’t a little overcooked short term), some Transports, some Consumer Staples, and perhaps a little bit of the Railroads and Defense.

Here is what I’m focused on within my Bullish Watchlist from yesterday and this morning (although I will keep an eye on everything):

Financials: STI, NTRS, PNC

Cyclicals: WHR, KMB

Consumer Staples: PEP, PG, CL

There’s more stuff than these few stocks, so I’m open minded, but in the morning I will have an eye on these.

One Final Note: I did manage to get caught up on answering your comment questions the past three posts.