While my indicators continue to be bullish, the stock market is extremely over-bought and over-extended at this point in time. Based on historical price observation, the first four days of a new month are usually bullish, which is what we’ve been seeing.
The move up has been very fast and very large, and this is probably one of the most over-bought markets I’ve seen in a while, suggesting that we’re probably close to a top in this rally – at least a temporary top.
As I have indicated before, bear-market rallies are usually very sharp and they move further than you think they will, as this one has. So, you must remain cautious of this situation. The S&P 500 is running into a lot of resistance at 2,000, and it will probably pull back from this level.
But you have to look at the fact that the U.S. stock market is close to an all-time high, yet the Chinese stock market has dropped 60%. That is not a good reflection on what is going to happen next.
And we’re seeing this continuous attempt by countries to decrease the value of their currencies to improve their international prices. So, that could happen in China, too.
Now, as far as the commodities, I still believe that oil continues to make a complex bottom — but that complex bottoming process now also applies to all the commodities. It may be a time to start taking some bullish positions in the commodities. Gold, of course, continues to be pretty strong.
Oil is trying to find some kind of consistent footing near the $33 per barrel area, but the strength of that support is uncertain. That said, it could move higher from here. But, because oil is making a complex bottom, you could still see some severe moves to the downside in the weeks and months ahead – or just as easily see some temporary spikes, which is what I’m expecting for today’s trade.
Still I think the reward is worth the risk here to start to nibble on choice oil and energy plays for some fast money. Buy to open the Kinder Morgan (KMI) June 21 Calls (KMI160617C00021000) at $0.95 or lower.
After entry, take profits if the stock price hits $20.80 or the option price hits $1.80. Exit if the stock price closes below $18.00. KMI closed Thursday at $18.90.
I suggest keeping your position small here and be quick to take profits. The volatility is far from over in the oil patch, so take the gains when you have them.
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