Any way you slice it, this was not a good week for the stock markets. While record high prices in oil started the equity market tail spin, it was the news from the minutes of the last FOMC meeting that really knocked this market down. The FED now seems to be more concerned with inflation than with the stability of the financial markets.

After touching its highest level since the first week of the year at its 200 day MA on Monday, the DJIA blew right through the support of its 50 day MA. The next stop for support will be the April low at 12, 250, but it certainly would not surprise me if the market pays a visit to the March lows of 11, 750.

The SP 500 is not doing quite as bad, since it is still being held up by its 50 day MA. The NASDAQ still has a way to go to reach the support of its 50 day MA. The question stock market traders have to ask themselves: Is the DJIA leading the market down, or will the broader market and technology stocks help the it to reverse course.

The markets were led south by Financials, Real Estate, Consumer Discretionary and Retail. While the former two have been wreaking havoc with the markets for quite some time now, the rough week by the later two seem to be a confirmation that the consumer is feeling the pinch of inflation a lot more than the government has been leading us to believe.

No reason to close out the bear call spreads we suggested earlier this week, unless you have picked up 75% of the potential profit already. In that case, you might want to take your profits and move on to your next trade.

JD

Two more strikes against the stock market yesterday. Oil opened higher, and kept on going, rising over 3% to close over $133 per barrel. If that was not enough, the FED released the FOMC minutes from its April 30 meeting. They pretty much confirmed that Uncle Ben is done cutting rates and now is more concerned with inflation. Glad to see he finally stopped at the gas station on the way to the grocery store.

Not surprising that the stock market reacted poorly to this news. It doesn’t look too good from a technical perspective either. We already mentioned that it had been stopped by overhead resistance at the 200 day MA earlier in the week.

Yesterday’s drop blew right through the bullish trend line established after the March lows. And thanks to Tony and Eric for pointing out several indicators showing that pricing momentum is definitely running out of gas.

With two big down days in a row, you should probably wait for a pull back to before taking more aggressive bearish positions or adding some protection on your long positions.

JD

While the PPI actually came in lower than expected at 0.2%, the core PPI was up more at 0.4%. This was a solid indication that increasing food and energy prices are starting to impact the rest of the economy.

It did not help that oil made another record high at $129 thanks to the falling US dollar. Can anything stop this commodity’s attempt to reach the stratosphere? I realize that oil is extremely over bought, but I’m certainly not going to bet against it.

To make matters worst, indications from the FED are that it is ready to take a break from interest rate cuts, which seems to confirm what many have thought.

Our cautious attitude towards the markets is not going anywhere. You might even consider a bear call spread on your index of choice while the market heads down to test support.

JD

No, I’m not talking about the Presidential Election, that’s a topic for a different conversation, just the US stock markets. We are still sitting at the 200 day MA for the DJIA and the S&P 500. A move above this level that holds for more than a day might just be enough to remove the air of caution around here. With options expiration out of the way for this month, the market is free to move in its preferred direction. We will soon see what that turns out to be.

JD

The first drop in the price of Oil and some good news in the Technology sector inspired the stock market today. The DJIA decided to bounce off of the support of its 20 day MA and the 12, 750 level it was sitting at on Friday’s close. The S&P 500 and the NASDAQ both bounced off of their 20 day MAs as well. Volume was nothing special, so we’ll have to wait and see if the bulls have enough energy to push stocks through their 200 day MA and change the tone from a bear market rally to a new bull market.

JD

The DJIA closed at 12, 745 yesterday, just a couple of points below support. It is the first index to retrace back down to test its new found support at 12, 750. On Monday we should get a good indication if the Dow is going to lead the market back down, or if it can bounce back and kick start the bullish crowd once again.

Oil has entered the parabolic phase of its accent.  It was up almost 10 dollars last week just settling below $126.  After-hours on Friday, FDX came out and warned because of this.  Does anyone else hear the footsteps of the bogeyman called Stagflation?  The market has faked out almost everyone.  It managed to get the shorts to cover based on the breakout and the bulls to commit new money.  I wouldn’t be surprised if the next move is lower.

BA

The CFC trade is working perfect. I would stay in it until the news is out. CLF didn’t disappoint but the trade is still a small winner. That is the benefit of getting a back spread for a credit. I would let the trade expire.

BA

Trade was iniated today.  Sold Jun 5 calls and bought Jun 5 puts +.30.  This trade should be kept on until the news is out.

BA