Stocks Chop and Fade into a Bearish Day

Hurricane Gustav didn't do as much damage as expected, which has traders dumping Oil futures down through several support levels all the way to the $108 area. Commodities futures in general are seeing quite a bit of selling this morning. Stock futures are up sharply as a result of the Oil and Commodities selling.

We will get the ISM Index report 30m after the open, but if recent trends in economic reports hold up, we will probably see a better than expected report. The table is set for a pretty big bullish day if all the early morning news holds up. The ISM will have a lot to say about things, but if Oil keeps dropping towards the next support at $105, then traders will probably be focused on that positive development more than any other news.

8:00 am MT: Oil smacked down towards my next support target of $105. Energy and Commodity stocks gapped down hard at the open. Coal and Chemicals are getting smacked especially hard, which isn’t surprising since those sectors have probably seen as much cult trading as any other the past several months. Gold is also down as traders move away from the “flight to safety trade.” Transports and Retail and other Consumer Spending sectors like Casinos, Fast Food, Consumer Staples, and Food & Beverage are jumping up sharply on the drop in oil prices.

8:15 am – 9:00 am MT: I nibbled on calls for JCP, BBY, MCD, and FDX. I thought about puts on Chemicals, Coal, and Energy but I want to be able to watch those more closely for short swings, and I don’t dare jump those when I can’t give all my focus to the trades.

The ISM Index reported pretty much in-line with expectations. I was expecting the focus to be on Oil anyway, so this pretty much seals the deal. Traders will be watching the battle at $105 on Oil Futures for clues on intra-day price action in stocks. In the smaller, intra-day picture, Oil held $105.50 and is trying to Hammer. In the bigger, macro picture, Oil is still in a downtrend, even if it holds $105 today and bounces, so Retail and Consumer Spending sectors will continue to benefit regardless of the intra-day rattling around with Energy Traders.

10:00 am MT: The Hammer bounce is still holding in Oil. Retail and Consumer Spending continue to hold up, and Energy and Commodity stocks are still down, so we shall see if it finishes out the day this way. Financials are trying to make a little noise on the continuation of the good economic news from the end of last week, but nothing really significant. Tech is way too squishy right now. I just don’t want to touch it. Even if I was wearing rubber gloves, I still wouldn’t touch Tech today. The Dow is holding up the best of the major indexes with some of the cyclical stocks keeping the index afloat.

I can still see the crosscurrents for a choppy market playing around out there. Oil came down hard on Gustav sputtering out, but the economic reports lately keep coming in at or better than expected, which could keep demand for oil up a bit. So some sectors like Retail and Consumer Spending are catching a tailwind, and some sectors like Energy and Commodities are selling, but there’s a whole lot in between that’s too choppy still, like the two biggest sectors in the world: Financials and Tech.

By the way, did the media overhype Gustav or what? At some point you would think that every big-time trader in the world would realize that media sells advertising and isn’t interested in informing the public. That’s just not their business. Their business is to suck in viewers through hysteria, fear, anger, hype, catastrophes, intrigue, depravity, and sizzle among other tactics. Once they get eyeballs, they sell advertising. That’s it. That’s the sum total of the mystery. I kept saying last week not to get sucked in to a big oil move just because the media was promoting disaster in New Orleans. I wanted to wait and see how it really played out with the hurricane, and of course, the media was wrong, again.....My favorite hysteria moment was watching one reporter literally freaking out because he spotted one person in the water. It didn’t matter that the storm wasn’t blowing very hard, and the man in the water had a live vest on, and was firmly secured to a tow line, and was probably working on something in the water on purpose.....the reporter kept right on squealing and freaking like he just witnessed the most dramatic moment since the Hindenburg! My second favorite hysteria moment was the AP showing a picture of a woman clinging desperately to her two cats with a look of pure anguish on her face three days AHEAD of when the storm hit and people were calmly evacuating. I mean, I have a cute little dog that I care about, and would want to protect if a storm was coming. But I wouldn’t expect the picture of me carrying my dog to her kennel so I could drive her and my family out of town to make the front page of the news! So there you have it, once again the media was NOT the place to get the news you needed to help you with your trading. If I traded off of what I saw portrayed in the media, I would have sold my home, car, and a few redundant body parts so I could throw everything I had into calls on Energy and Commodity stocks and puts on Insurance stocks. And I would have gotten absolutely killed in my trading account, and I mean OBLITERATED if I had traded what I saw coming out of the media.

10:30 am MT: The SPX took a key leg down intra-day, so this is it for me, confirmation that we are still in chop and slop. I refuse to get loaded up on my trading right now, which is why I nibbled lightly this morning. I will watch the Retail, Leisure, and Transport calls from this morning for possible exits before the close. I took small positions, and I may not make anything off of the trades, but I also risked very little. Traders are still dumping Energy and Commodity stocks despite the intra-day bounce in oil, which is significant to me. I just don’t think Big Money has much of a taste for stocks right now. There are little sector moves here and there, but traders are acting squeamish about owning stocks. Energy and Commodity stocks look like they are taking another leg down, but the overall stock market is not benefiting much from the move down. I may look at puts on Energy and Commodity stocks if we get a another swing up intra-day, but I don’t feel like chasing anything new right now, although I would keep riding the puts if I was in them already.

1:45 pm MT: I sold all four nibblers from this morning. I lost .20 cents on JCP and FDX. I lost .25 cents on BBY, and I lost .55 cents on MCD. The total losses were only $280 but it confirmed for me that Big Money is not coming back to buy the market after the summer vacation. I still don’t see anything that is changing my opinion of a potentially choppy week.

I don’t feel like holding big positions overnight, but I am interested in puts on Coal, Chemicals, and Energy. I went ahead and nibbled on puts for PXP, NFX, and NE.

3:00 pm MT: Market Wrap: Oil bounced back intra-day right in the area that I speculated could be support. Oil Futures finished the day with a Hammer-like candlestick. The stock market took an ugly turn shortly after the open, and the Naz looked especially sick as it sold off sharply from the high. All three indexes finished in the red. Most elevator analysis that you see tonight will blah blah blah about some goofball reason or other for the market gyrations. The real reason was that Big Money came back from summer break and did what they often do, which is sell in September. They had every chance and reason to buy this morning, but Big Money just kept selling into every rally intra-day. That ought to tell you what Smart Money thinks right now.....I know I keep saying this, but I’ve been warning since last week that we were going into chop and slop, and here we are, in the middle of chop and slop. I’m not spectacularly bearish either, especially with the nice drop in oil prices the past six weeks.

As far as oil goes, Boone Pickens was out yapping again on CNBC about how he thinks crude won’t go below $100. That was a really daring statement for him since most astute chartists on the planet were already guessing that the speculative froth on top of the fundamental price of oil would take us down to $90 - $100 from the $145 - $150 area. But, since Boone likes the face time and CNBC sells advertising, then suddenly his comment was big news today. The general yappity yapping was enough to ping oil right off the $105 support area, although we could still drift down a few more dollars eventually. My lowest target on oil is still the $95 - $100 area, although Boone is claiming that OPEC will cut supply if we go that far, which is probably correct.

So I’m not bullish because Big Money is not bullish, and I’m not bearish because oil has come down sharply off the $148 high. And I’m not bullish because it’s September, and I’m not bearish because Durable Orders, GDP, and the ISM Index are all showing an economy that is holding up. And I’m not bullish because Construction Spending and Housing continue to crunch through a bearish Real Estate market, and I’m not bearish because interest rates are relatively low. And I’m not bullish because Banks and Financial institutions still have hundreds of billions of dollars to still write down, and I’m not bearish because this is America and still the most resilient economy in the world. We’ll see how things go in September, but for now I’m anticipating more short swing trading and smaller positions. We may see more non-trending conditions for the next few weeks, but that didn’t stop me from having a good summer of swing trading.

Here is an interesting Bearish Watchlist for the next couple of days (I didn’t make a Bullish Watchlist even though I created a list of Bullish stocks - because I just don’t see playing calls as a good idea for the next few days):

Coal: ACI, MEE, BTU, CNX

Energy: NFX, XTO, ESV, SWN, PXP, RRC, NE, CHK, PXD, CAM, COP, DO, SLB, SII, BHI

Chemicals: CF, POT, AGU, MOS, TRA

Steel: X, SCHN

Gold: AEM, GG

Construction: FWLT, FLR

Note: JEC (broke a Triangle)

If I see a little wiggle back on Coal, Energy, Chemcals, Steel, and Construction I will look at those areas for short swing puts, perhaps Tuesday to Wednesday or so. Today they got a little oversold intra-day, so I want a nice wiggle tomorrow before entering and looking for one more day down, perhaps two days at the most.