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.

---

Volatile Oil

The Light Crude Continuous Contract fell from $67.70 a barrel... Read More

Building The Foundation For Wealth

You wouldn't build your home on anything less than a... Read More

Foreign Investing - US Investors Still Missing Out?

Investors are still too slowly realizing what the academics have... Read More

Time is Money and We Are Running Out of Both!

One of the fundamental principles of finance is the concept... Read More

Approaches to Investing

Here is a small summary of the three major approaches... Read More

The Arrow-Debreu Contingent Claims Model of Investment

Throughout the discussion of speculation and stability, we emphasized that... Read More

Bankers in Denial

Denial is a ubiquitous psychological defense mechanism. It involves the... Read More

Useful Tips on Investing

Here are some useful tips on investing. When you make... Read More

Forex Trading Best Practices

FOREX, the term for the FOReign EXchange market, is an... Read More

Press Release Scams and Successes: Reading Between the Lines

Press releases are a means through which companies can keep... Read More

Why have Investment Plans for the Stock Market

If you do not have an investment plan in the... Read More

Get Wealthy With the Rule of 72

When it comes time to retire how many people would... Read More

Maniac Investment

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

Do You Need A Financial Planner?

No matter how much money you make, it pays to... Read More

Buying Florida Investment Properties and Where Its Hot

Relaxing in Style: Florida Investment PropertiesIn Florida, relaxing in the... Read More

Makin The Sauce

Let's face it, you're on a roll. After getting down... Read More

Reasons For Joining An Investment Club

Whether you're a novice investor or an experienced stock picker... Read More

How Eating Bitumen Made Me a Better Stock Trader

Stock market trading is a fascinating activity.There are so many... Read More

The Past Does Not Equal The Future: Mutual Fund Returns!

A way that investors get ripped off and in a... Read More

Caveat Emptor: You May Owe Taxes Despite 401(K) Losses!

One among many ways you lose money in non-indexed mutual... Read More

The Power of Small Numbers: Trading Success is Based on Consistency, Not Home Runs

Online trading is so seductive - just sit, click, and... Read More

Buying a Home - Your BIGGEST Investment

This column has often focused on intangible investments like stocks... Read More

Are You An Investment Dummy Like Me?

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

Investing & Online Stock & Share Trading- The Stock & Share Markets are Booming But Be Warned

I had the pleasure of being invited on a friend's... Read More

Day Trading Strategy or Stock Trading Software? The Way You Pick Stocks Affects Your Results

The trading method you employ to approach the stock market... Read More

Buy: Hold: Sell: Jump

I'm sitting here at my computer desk with a cup... Read More

5 Day Trading Tips for Success

1. How to Treat Gap Openings A gap up or... Read More

What is an Investor Ready Business Plan

A Business Plan, as all good entrepreneurs starting out in... Read More

Remembering TEOTWAWKI and Learning from It

Its only been about 5 years since we had major... Read More

Is a SEP Plan Right For Your Business

A SEP is a special type of IRA. Under a... Read More

Why You Need To Buy and Sell Gold Coins (Part 1)

The Value of Gold in a Era of Paper Assets,... Read More

June 2005: Weather Forecasts for Weather Traders

If Johannes Kepler, the renowned 17th century astronomer and discoverer... Read More

What My Horse Had For Breakfast

Let's see, he had some oats, fresh alfalfa and his... Read More