Momentum Trader Report: 05/26/08

The market often has a bullish Friday before a three day weekend, but that wasn’t the case last Friday. All three major indexes closed much lower, and each closed the week down over 3%.

The S&P 500 now sits at the 50-day SMA, and could bounce here.

Meanwhile, the Nasdaq sits right at its trendline. It too could bounce here.

The first level of resistance to watch is the 2500 area. The next one would be the 200-day SMA.

Is Oil In a Bubble?

The recent move in the price of oil, as well as the parabolic moves in speculative oil stocks has made some traders wonder oil is in a bubble. John Mauldin of FrontlineThoughts.com has an interesting article on the rising price of oil over the last few months, which he says is driven largely by speculators. He is predicting a correction in the price of oil, which could be “a violent one”.

George Soros has also made comments recently about the price of oil, confirming that the price is being driven by speculators. He’s also predicting a correction, but not until the US and Britain enter into a recession.

If you believe that there will be a dramatic correction in oil and oil stocks, you may want to watch DUG, an ETF that corresponds to twice the inverse of the Dow Jones U.S. Oil & Gas index.

I posted a chart of DUG last Wednesday, noting a bottoming tail (although it was not technically a true bottoming tail). Since then, DUG is up 5.72%.

Many oils stocks are very extended, but have pulled back over the last couple of trading days. It will be interesting to see which direction they move this week.

Trade Ideas for 05/27/08:

The momentum in this market appears to be gone for now. With the market now in a correction, I am only looking at day trading. I was day trading for most of March 2008, and if you look at the Past Performance spreadsheet for March, you can see that there were some nice daily moves made. But few of them had much continuation until the rally started on March 2o. So I plan to very selective with my trades, paying close attention to market action and volume, and taking profits quickly.

Here are a few stocks I will be watching.

Good luck and good trading!