Oh where oh where will the market be heading? Oh where oh where can she go?
It is a good question. One that no one is quite sure how to answer. Things are looking like its time to sell off, however, all eyes are on a Fed decision on interest rates. How will this affect the markets? Yesterday, we saw a healthy dose of selling as buyers hit the sidelines. My guess is that a general market sell off continues in the morning as buyers still wait to jump into this thing prior to the Fed’s report this afternoon. It probably, however, will not be as bad.
Other key information we will be looking at is the report on trade balance. A bullish number here would be good for the markets and show the health of both the USA’s economy as well as global health. That report comes out at 8:30 AM. Additionally, the Treasury Dept. at 2:00 PM, just 15 minutes prior to the Fed report, will be announcing the budget deficit to the American public. Plus, at 10:30 AM, we have crude inventories coming out, which should definitely help give some direction to crude prices.
Across the pond, today, Europe was not threatened by yesterday’s sell off in America, and the markets are up, which is a healthy sign. However, Asia was hit hard by the problems in the American market, with the Hang Seng dropping over 3%.
However, it is hard to tell if these foreign markets will even have any affect, whatsoever, on the markets today because investors are very focused on the Fed report. Futures are up slightly heading into the trade balance report, and I think that if that number comes out positive, it will give the market enough for a slight lift.
Another reason to be positive, as well, is that this morning, Toll Brothers, a major residential construction company, reported that they saw their home contracts up instead of down in the latest quarter. It has sent the stock up over 7% in pre-market trading. It will definitely be a catalyst for that sector as a whole. However, SRS is not down significantly, and I don’t think this will have a great affect on a multitude of positions.
Therefore, my position today is that things are just very murky. A lot of capital is staying on the sidelines waiting for that report to come out. To be honest, I want to avoid the market all together, and turn my attention to something that may be a bit easier to gauge…oil! Oil saw a drop in Asia, and it is just slightly trading up going into today’s session. I don’t want to 
predict where crude inventories will be, but I know that once they are released, the crude prices are going to be very volatile.
Buy Pick of the Day and Short/Short Sell of the Day: Direxion Bull/Bear Daily Oil (ERX/ERY)
Yesterday, oil got a smack in the face from OPEC and some positive economic data that sent the prices down below $70 per barrel. Typically, on Tuesday, it seems that oil tends to trade up or at least more neutral going into those inventories because there is a lot of speculation going into that report. Yesterday, the price got knocked around, and so, that report is not priced in any way. If it might be bad, that was in no way the catalyst for yesterday, and if it is good, then the oil prices can do a complete 360 today.
Therefore, the way I want to play a murky day like today by buying right on the report. If it is positive and crude inventories have increased more than expected than we want to buy Direxion’s Daily Bull Oil/Gas ETF (ERX). On a positive report, ERX will make a move. On a negative report, we want to play Direxion’s Daily Bear Oil/Gas ETF (ERY). Both ETFs have really made no movement in pre-market trading because they are awaiting these results. ERX is down just 0.06%, while ERY is also down 0.74%.
The murkiness of today’s market and its very sideways appeal is making a lot of stocks look boring and hard to \gauge for large enough intradays movements that could really move stocks. That is why I want to turn to oil for its report that can make some movement in the market, as the sector can definitely have a mind of its own (which is good for today). I like ERX and ERY because they are more volatile and will move more than some other leveraged funds or a single company would on the news.
The way I would enter the ETFs is right when you hear the news at 10:30 AM, put in your buy order. I would even have it already set up to buy and all you have to do is put in an "x" or a "y," click buy, and it is off the races. For exiting the ETFS, ERX is definitely a bit more overvalued, so a good report will not lift the stock as much as a bad report might lift ERY. For ERX we can look for a 2-3% gain off of your entry price at 10:30 AM. I am not going to speculate those prices because they could be anywhere at 10:30 AM. On ERY, I think we can look for a 2-3%, but I could definitely see the ETF making a move on the inventory reporting. The reason ERY did not move like a lot thought it should have yesterday was because of this report.
Check back at 10:30 AM. I will post an alert about the entry prices and give more specifics on exiting the ETFs given the report, market reaction, and market sentiment.
8:45 AM Update: The trade balance came back better than expected at 8:30 AM. This is good for the dollar, which should push oil prices down in the morning, but we don’t want to get locked into ERY as a buy and ERX as a sell because it could make a quick turn around if inventory reporting was weak.
