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Wednesday Wrap-Up: Oil Surges, Commodity Stocks Rise

|Includes: AIG, APA, DO, DVN, FCX, First Solar, Inc. (FSLR), NOV

The market gapped lower today to open.  On Monday, in my evening article, I wrote:

"So, there's no hurry jumping back on the long side just yet.  I'd rather enjoy a couple of days playing the downside."

We entered into some August puts on FSLR:
August 17, 2009
08:51 | HappyTrading FSLR ($134.50) Bought to Open QHBTG Aug 135 put, at $4.70

Today, FSLR open down and traded all the way to just below $128.  We locked in some profits right at the open and took rest of our position off near the day-high for a +66% gain:
August 19, 2009
07:16 | HappyTrading FSLR ($128.50) Sold to Close QHBTG Aug 135 put, at $7.80 +66%
06:31 | HappyTrading FSLR ($130.50) Sold to Close QHBTG Aug 135 calls, at $6.00 +28%

These options traded as high as $8.1 and closed at $5.

Then, about 2 hours later, the market reversed its direction and started to go higher.  I commented in our Trading Room:
August 19, 2009 8:52 AM
market
seems to be rallying...

August 19, 2009 9:11 AM
financials
coming back up.

AIG
flying!!

commodity sectors
leading the rally; a good sign!

We jumped into some September calls on AIG, and locked a +34% profit in less than 1 hour:
August 19, 2009
09:55 | HappyTrading AIG ($27.00) Sold to Close IKGIB Sep 28 calls, at $3.15 +34%
09:08 | HappyTrading AIG ($26.00) Bought to Open IKGIB Sep 28 calls, at $2.35

Our exit here was near the day-high, again!  These options traded as high as $3.2 and closed at $2.64.  Our timing was impeccable today and made money on both (long and short) sides!

We have been talking about how we need the commodity sectors to rally to push the broader market higher.  It was indeed to encouraging to see these sectors lead the charge today.  This morning Goldman Sachs added FCX to its "Conviction Buy List", noting that the demand for copper will continue to rise.  FCX gained +2.68% and traded even higher in after-hours.  Oil surged above $72/barrel and energy stocks followed along: DVN +1.24%, APA +1.13%, DO +2.07%, NOV +1.99%.  NOV, which had been trading in a tight range for the past 3 weeks, looked particularly strong.

The Dow finished up +61.22 points; SPX added +6.79 points; Nasdaq gained +13.32 points:

USO (oil) jumped +3.42% and OIH (oil services) added +1.86%.  XME (metals and mining) eked out a +0.55% win.  XLE (energy) rose +1.86%.  XLF (financials) finished flat.  BTK (biotechs) led the techs with a +2.19% gain.  FXI (Chinese ADRs) finished slightly in the green.

SPX

SPX added +6.79 points to close at 996.46.  It closed above the 20-day MA.  Its MACD slipped.

Nadsaq

Nadsaq gained +13.32 points to close at 1969.24.  Its 10-day MA flattened.  The MACD was lower.

Today's reversal to the upside was significant.  As you can see, Nasdaq stopped falling right at its 30-day MA, while SPX successfully tested 980 again.  The bollinger bands continued to narrow in.  Yesterday, in my article, I wrote:

"The immediate support levels are still the 30-day MAs and the resistance levels are the 20-day and 10-day MAs.  Until the indices move beyond the daily MAs, we are still in the consolidation phase."

So, the market indices finished again within the range bounded by the daily MAs, which means we are still in the consolidation phase.  But, what's encouraging is that both SPX and Nasdaq are now very close to their respectively 10-day MAs, which have both flattened today.  A push above the 10-day MAs could potentially lead the market to break out of the recent trading range. 

Another thing to note is the VIX.  VIX jumped above 28 this morning, but, was again unable to break that resistance.  It basically closed flat today.  VIX's daily MAs are bunching together (see the chart below):

VIX

If VIX rises above 28, it'll likely break into a bullish formation.  However, if VIX falls below its daily MAs, the support at 23 can easily be tested again.  The market indices and the VIX are all telling us that consolidation is still happening.  But, it does seem like a direction will be decided soon.  Like I said yesterday, "Be patient, and allow the market to show clearer signs."

Good night and HappyTrading! ™