BigTrends

As we all try and come to grips with the horrible disaster in the Gulf and the oil spill, this has become a life-changing event.  Could any of us feel worse about the disaster?  The loss of life, destroying the ecosystem, beaches bombarded by crude.  Yet on Tuesday President Obama took us in another direction, and the market responded vigorously.

Needing some kind of catalyst to get it moving again, Obama mentioned natural gas...something he hasn't done in quite awhile...as an alternative, and would press to get this into an energy bill very soon.  As you would expect these names responded - DVN, CHK, HK to name a few.  On Wednesday some other Nat Gas drillers responded to the President's lifeline...the world of drilling is no the end all.

We'll see if there is more rhetoric to come, the oil companies are formidable opponents to other sources of energy.  However, if it's the markets that need a jolt then we can see a dose of alternatives is all it takes.

It looks like there was a large lot purchase of 6,000 November 54 Puts on the iShares Oil & Gas Exploration Index (IEO) today.  According to the ISE data, this was a straight Put purchase and not part of a spread or hedged trade.  It is not always certain in these cases, however, if there is an underlying stock position that could be part of a hedged position.

Something to keep in mind, as this security has very low open interest.  When analyzing these types of trades to attempt to gain an edge, it will usually require further research and study to determine patterns of "smart" or "dumb" money ... or whether they may be hedge/volatility or other types of institutional trades that are not strictly directional based.

The Top 10 holdings of IEO as of 9/30/2009:

I mentioned in this week's trendwatch that the markets were heading toward a breakout....and indeed it occurred this week.  I also said a range would be established, upside unknown so far.  The gap at 905 on SPX is begging to be filled, and could be on the next round of selling.  With only a week or so to go before the end of the month I can't see much of a selloff before then, especially given the recent strength and rotation.  The Fed is still accomodating, the credit market are improving and firms are beating low expectations...ingredients for a rally.  Energy names are upcoming, and should be good.

Oil moved higher again today, continuing its rebound, and the general recent strength of many hard commodities.

The USO, an ETF which attempts to track the price of West Texas Crude Oil, is above its Top Acceleration Band on the Daily Chart below.  In addition, Percent R and Efficiency Ratio are showing very strong readings.

Markets are under pressure Thursday but it should come as no surprise.   Energy/oil have been strong of late but this is an area I'm looking at closely, along with other commodities such as coal, ags and metals.  These are new leaders of this market and should get a nice pop after some pullbacks.  The market excesses are still out there but are being squeezed.  Other areas of interest include tech, retail and restaurants...insurers when they pullback.