Trader Mike

This was a session which I like to label as a chopfest. The bulls can claim a victory though since the indices finished higher on the day and volume, while still on the light side, increased a bit. But I’ll call it a minor victory for the bulls since the advance decline line were mixed — positive on the NYSE and negative on the Nasdaq — and the indices didn’t even regain all of Monday’s losses.

Oil broke its July trendline today in unimpressive fashion. It may be worth keeping an eye on though…

Trend Table

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TrendNasdaqS&P 500Russell 2000 Long-TermDownDownUp IntermediateUpDownUpShort-termDownDownDown

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One of the Fast Money guys mentioned the UltraShort Oil & Gas ProShares ETF (DUG) on yesterday’s show. He questioned how that ETF, which is the double inverse of oil & gas could be up for the day while oil was also up. A quick look at what DUG actually is gives the answer:

UltraShort Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas IndexSM

That “daily” part adds one complication to the picture. From the article ‘Understanding ProShares’ Long-Term Performance’ on ProShares’ site:

ProShares are designed to provide either 200%, -200% or -100% of index …

This was one of the stranger days I’ve seen in a very long time. Some of the recently weakest sectors, like the transports, the Nasdaq-100 and the semis, rallied the most today. The trannies were obviously boosted by oil getting crushed for the second day in a row. As for the why the semis and the Naz 100 got moving today, your guess is as good as mine. But that’s not the strange part, what really got me about today was how narrow the rally was. For most of the day, before I left due to boredom, the advance decline line was negative. That combined with the S&P and Dow being in the red made me really suspect of the Nasdaq rally.

On a day like this I always want to look at how the various sectors performed. Here are some tables from the StockCharts.com’s Market Summary page . The sole long green bar next to the Nasdaq 100 says it all about the Major Indices — it had a 1.9% gain and no other index on the list was up more than 0.32%. That’s narrow!:

The sector (industry) indices shows that the internet stocks (GOOG) did the heavy lifting today followed by semiconductors, computer technology, biowrecks and transportation stocks:

Here’s the Nasdaq chart:

Trading was a little tricky this morning as Ugly illustrated well. The market gapped up then closed the gap which brought the Nasdaq and Russell back under their 200-day moving averages. (Another day in which fading the gap would have worked.) The bears were probably real happy at that point but then the market reversed again and rallied for the rest of the day.

Around 10:15 I decided to shut it down for the day. That was partly due to the fact that my gut was telling me to be long today but the action at that point as well as my moving averages were telling me to look for shorts. I was also …

The action should really pick this week. Not only is it options expiration but earnings season heats up, oil is trying to breakout above $70 and gold is at 25-year highs. I’ll be watching oil closely via the new ETF, United States Oil Fund LP (USO)…

Potential swing trades: