Next Stop: $40 Oil?!?

Check out the recent action in the Three Amigos — equities, gold, and oil.

Stocks are holding strong as the S&P 500 blasts back above its 200-day moving average for the first time since early March…

Gold has found some of its lost momentum after a fake-out move below $1,700 earlier this week…

Meanwhile, oil is pushing toward the top of its range after a sideways consolidation over the past week.

You can see the stability in oil since the May contracts’ infamous run into negative territory. Crude is up an astounding 300% since bottoming out in April! Buying when there was blood in the streets has handed opportunistic traders impressive gains this month!

It’s all about money flow — and money is flowing back into crude after its capitulation move. $40 is beginning to look like the next target level, which is where the breakdown happened when the s**t hit the fan in the first place…

WTIC chart

Make no mistake, I’m a chart guy — and you can’t ignore this momentum (that we’re also seeing in the stock market, by the way).

With that said, it’s also important to remember that trying to pick exact tops and bottoms can be disastrous.

Instead of trying pinpoint where the market might bottom or flame out, I’m much more interested in playing the price moves as they reveal themselves during the market’s comeback run.

In fact, I’m seeing so many charts have the exact same bottoming pattern right now. We could continue to see significant bounce-backs in some of the stocks that have been, up until this point, left behind by the stock market snapback.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: A Quick Rotation Hits NVDA

Greg GuenthnerTrading had a different feel to it early this week as beaten-down sectors from industrials to financials abruptly started to outperform the mega-cap tech leaders.

The Dow stormed out the gates on this holiday-shortened week while the Nasdaq slumped – and continued to retreat until buyers stepped in on Wednesday afternoon.

I’m not surprised to see some profit taking in these high-flying stocks. In fact, a little shakeout can actually help shore up the longer-term uptrends before they become overheated.

The tech pain was especially evident in the semiconductor sector. Semi-superstar NVIDIA Corp (NASDAQ:NVDA) opened at its highs on Monday, only to close well below its Friday lows (on a day when the Dow and S&P finished in the green, no less).

It doesn’t look like much on the chart, but NVDA shares dropped 12% from Monday’s open through mid-day the next session. That’s when the buyers stepped in — right at NVDA’s 20-day moving average that has acted as perfect support since early April:

NVDA chart

This little drop effectively shook out the weak hands and could pave the way for the next move higher in NVDA and the entire semiconductor sector. You just can’t keep a good stock down in this market…

Trading Tip of the Day

Every trader needs to know his limits. So you need to ask yourself… what stocks should I avoid at all costs?

Maybe you think buying stocks below $1 is too risky. Or maybe you have volume requirements so you don’t get stuck in a name that’s too thinly traded. Perhaps you trade only domestic equities. Or you have a particular sector or industry group you prefer to avoid.

Whatever your preferences, you need to eliminate your negatives. It’s essential to know what you won’t trade – then put it in writing. Writing it down forces you to commit to your rules in a way you might not otherwise do. So if the market ever tempts you, you’ll be less likely to throw a bet down on a trade that you know, deep down, is a long shot.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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