Oil and Gasoline Price Uncertainties

The Light Crude Continuous Contract hit an all-time high at $70.85 a barrel, while Unleaded Gasoline Futures spiked 50% or $1 a gallon on Tuesday. However, oil closed the week at $67.57 a barrel, while gasoline finished the week up 15%. There's still uncertainty over the extent of oil and gasoline disruptions in the Gulf, over the next few weeks or months, caused by hurricane Katrina. However, there are many forces keeping a lid on oil and gasoline prices.

The summer driving season ends after Labor Day. President Bush urged Americans to conserve gasoline. Many Americans canceled driving plans for the Labor Day weekend, because of price spikes in retail gasoline. There were thousands of complaints about price gouging at gas stations last week. European governments are shipping oil and refined products to the U.S. The U.S. government opened the Strategic Petroleum Reserve, to oil firms, and suspended restrictions on regional gasoline standards. The strong U.S. economic expansion has been slowing, and may continue to slow in coming months.

Oil and gasoline may have hit short-term tops on Tuesday, while it seems oil stocks had "blow-off" tops (opposite of capitulations) Wednesday and Thursday. Consequently, oil stocks may be in a volatile range over the next few weeks, along with the stock market in general.

The first chart below is an OIH weekly chart. Last week, OIH, an oil ETF (i.e. basket of oil stocks) traded between 112 and 122. I suspect, the volatile trading range will continue, while oil stays in the $60s. OIH has major resistance in the low 120s and major support in the low 110s. So, there may be excellent opportunities to trade OIH options (or options on other oil stocks) next week.

The second chart is an SPX daily chart. There's significant short-term support around 1,200 (i.e. psychological support, 200 day MA, and Parabolic SAR buy signal). Last week, 1,225 was resistance. If SPX holds 1,225, it may trade up to 1,245 (recent high), and 1,253 (multi-year Fibonacci level). However, SPX has open gaps at 1,174, 1,143, and 1,138.

September options expire in two weeks. Some current September Max Pain expirations are: SPX 1,220 with the value of calls 150% more than the value of puts (which is bearish, because the put/call is a contrarian indicator). SPX closed at 1,218. OEX 565 with the value of puts 130% greater than the value of calls (which is bullish). OEX closed at just over 563. QQQQ 39 with the value of puts 15% more than the value of calls. QQQQ closed at 38 3/4. Volatility normally picks-up two weeks before options expiration.

Economic reports next week are: Mon: None (market closed for Labor Day), Tue: Revised Productivity, and Fed's Beige Book, Wed: Unemployment Claims, and Wholesale Inventories, and Fri: Export & Import Prices. Also, in September, the FOMC meeting, earnings warnings, and end-of-the-quarter window dressing should influence the market.

The uncertainty of oil and gasoline prices, and economic data, caused by hurricane Katrina should contribute to volatility over the next two weeks. The stock market may continue to consolidate, short-term, until earnings warning season in late September, and third quarter earnings in October.

Charts available at PeakTrader.com Forum Index Market Overview section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past four years.

In The News:


pen paper and inkwell


cat break through


Your Worst Enemy To Successful Investing - The Media

How do you make your investment decisions and where do... Read More

Trading Baskets Part I

Q. What is a basket?A basket is a group of... Read More

Options Made Easy and Investor Education - Simple Enough for a 10 yr Old Kid

How many of you out there think that the market... Read More

Trading Systems

A trading system consists of a set of rules for... Read More

The Conflict of Interest Game

Disgruntled investors are going after Wall Street once again, this... Read More

Investing and Understanding What You Buy

"There is nothing more frightful than ignorance in action!" Johann... Read More

Easily Finding A Good Stock

There is a tremendous amount of software, complicated high priced... Read More

My Way Or The Highway: Give Your Financial Professionals A Good Talking To!

All this talk about Investing is encouraging lately. Over the... Read More

Beta Factors: How They Can Be Used In The Current Situation

Ever since the turn of the century, world stock markets... Read More

When It Comes To Investing, Asking The Right Questions Can Help You Make The Right Decisions

Are you ready to open your pathway to financial independence?Well... Read More

The Demise of Buy & Hold

Based on consistent results I think Buy & Hold should... Read More

Maniac Investment

Let's first understand what maniac means. According to Webster a... Read More

Why You Need To Buy and Sell Gold Coins (Part 3)

Putting Rare Coin Market Cycles to Work for You...Until recently... Read More

Hedge Fund 101 - Make Money with Hedge Funds

Investors are always looking for the best investments that will... Read More

401(k) Plans

I've been in and interested in the stock market so... Read More

How to Terror-Proof Your Money

"To drift is to be in hell, to be in... Read More

Super Rules, OK?

Do you rule your superannuation or does it rule you?It's... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

Invest or be Pink Slipped

Firing an employee seems to be easier and easier for... Read More

Making Your Investment Dollars Work for You

Investments are scary for some people, especially those who have... Read More

Dumb Money

Many people have, at one time or another, taken some... Read More

Just what is Arbitrage Investment?

In the simplest of terms, Arbitrage means to exploit price... Read More

Chinas Inscrutable Currency Strategy

Purpose: Expose Opportunities for Smart InvestorsThe move by China's central... Read More

Going Against the Conventional Investment Wisdom

First of all, I want to give everyone the disclaimer... Read More

Shop More, Save More for College Gimmick or Reality?

The man sat in a chair beside a dressing room... Read More

An Introduction to Offshore Investing

Once upon a time, offshore investment strategies were spoken of... Read More

Investigate Before You Invest

"Through wisdom is a house built. And by understanding it... Read More

Realistic Investing Expectations

Over the long term stocks have provided us with great... Read More

Getting Started Investing is Often the Hardest Part

There are several reasons people give for not investing their... Read More

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to... Read More

Finding a Broker

"Hey Joe! I need help finding a broker. I notice... Read More

The American Age of Inflation is Over

"The American Age of Inflation is finished." So says economist... Read More

Investing As A Sport?

I said last week that money doesn't generally buy happiness,... Read More