Market Bounces as Oil Drops and Financials Pop

Stock market futures are down sharply on continued capital concerns in the Financial sector. Traders are concerned once again that LEH may be signaling that the banking system doesn't have the cash or the means to meet its obligations. We may get a few news bogeys today.....It won't be surprising to me to see LEH drop sharply again today and for grumblings to spread throughout the news about whether or not the company can stave off bankruptcy. Citigroup downgraded LEH from Buy to Hold, and Goldman Sachs downgraded LEH from Buy to Neutral. I put that little blurb in there not to back up the prior news on LEH - I don't really care about analyst gradings - but rather I added that news byte because I wanted you to see that Citigroup and Goldman Sachs had BUY ratings on LEH as recently as yesterday!......

It looks like the market pause from yesterday will resume with a drop this morning. Remember that the Naz is looking oversold on the charts, and the Dow is coming up on support in the next 150 points or so. That means I want to take advantage of my puts early in the day, scale out of some positions if the Dow drops 100 - 150 points, and then watch for whether or not it looks like any downswing will continue into the close. We may see a typical September selling day today, so I'll play for that, but I'm keeping one eye on how oversold the Naz is getting.

7:40 am MT: The Dow gapped right to support so I sold the DIA puts for a .35 cent profit or 9% gain. I sold the SPY puts for a .20 cent profit or 5% gain. I cleaned out the NFX and MGM puts at basically breakeven. I stopped out of the ECA puts for a .25 cent loss on four contracts (I don't want any more oil trades until Hurricane Ike is done). And I sold the LVS puts into the gap for a big 1.04 profit or 18% gain. LVS may have another $2.50 or so to drop, but I can't watch it as closely as I want to this morning, so I'm locking and walking for now.

12:00 pm MT: I warned before the open to watch minus 150 on the Dow, which is precisely where I sold my DIA puts. The Dow hit a low of 11,098, which was minus 170, and then it was done. I also warned the Naz was overdone, and it's bouncing so far today. At this point I'm not interested in puts anymore.

12:30 pm MT: Here are some interesting call plays that I may entertain before the end of the day: ESRX, SUN, MET, JPM, NTRS, STT, FDX, SHLD, JCP. There are others, but I need to do some more stock hunting for the next hour or so to decide on what I like. I'll wait to see if we get a pullback in the next 30m to decide if I want to get any calls.

9:00 pm MT: Market Wrap: The major indexes bounced back from the support areas I was targeting pre-market. The positive catalysts were a continued slide in oil prices and the rumor that LEH may have a buyer. The bounce today could lead to another move up tomorrow, and then depending on how the weekend news plays out with LEH and Hurricane Ike, perhaps another move up on Monday.

Tomorrow we get the PPI and Retail Sales numbers. As long as both numbers are in the neighborhood of expectations then I don’t expect them to move the market much - because both are August numbers - and the drop in oil will have traders focused on the future numbers. In other words, even if PPI is a little high, traders will speculate that PPI comes down in September because of the drop in oil prices. And even if Retail Sales is a little low, traders will speculate that Retail Sales go up in September because of the drop in oil prices.

If we don’t get any negative news bogeys in Financials or from Hurricane Ike, and the positive rumors of a LEH buyout persist, then traders may continue to buy stocks tomorrow in anticipation of a possible positive news bogey over the weekend. Traders will remember the Fannie/Freddie news bogey last weekend and how it popped the market on Monday - and that might get them positioning into Financials and other stocks tomorrow. If we get some positioning tomorrow, that could push the market up some more, and if we get a positive news on a LEH buyout over the weekend, and positive news out of Hurricane Ike over the weekend, then we could get more follow through to the upside Monday.

I will probably play calls tomorrow, and I will probably scale out of most positions ahead of the weekend rather than count on a positive news bogey over the weekend, even though it could happen. But as always, we shall see what happens tomorrow.....

Here are some interesting Bullish Movers from today:

Healthcare/Biotech: AGN, MHS, ABT, WAG, HUM

Railroads: BNI, CSX, UNP, NSC

Financials: JPM, MET, NTRS, STT, RKH, STI, PRU, BK, WFC, BBT

Cyclicals: DD, WHR, IP, KMB

Retail: SHLD, BBY, EL, GES, JCP

Food/Beverage/Consumer Staples: GIS, CL, PG

Defense: LMT

Also interesting: ESRX, SUN, RYL, ENR, BDK, HD, UNH

Remember to check for .10 - .20 cent spreads and also make sure that the stock is not coming up on earnings in the next 2-3 trading days.