Oil prices briefly shot up more than $25 a barrel Monday, shattering the record for the biggest one-day gain ever as Wall Street worried about the government’s $700 billion bailout plan. The concerns caused oil to spike and the dollar fell sharply which led to the sharp rise in gold. This all took a toll on the market as the Dow fell 373 points to finish at 11,015. There went Friday’s gains.

Oil jumped as high as $130 a barrel before falling back to settle at $121. A big reason for the jump was the expiration of the Obcotober contracts which expired at the end of the day. This clearly added to the volatility as traders rushed to cover positions.

What was interesting was the fact that the severity of the price move prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame. This has been a topic of interest for quite some time and I always say where there’s smoke, there’s fire.

If you were short oil over the past few months then you probably did well up until the last few days. Oil has gained nearly $30 over the past four trading sessions. The U.S. Oil Fund (USO, $87.62, up $4.99) which tracks prices of West Texas light, sweet crude oil gained 6% yesterday and the iPath Crude Oil ETN (OIL, $64.57, up $3.40) also traded higher.

In other trading, the weaker dollar helped gold prices surge more than $44 to settle at $909 an ounce. It seems that commodities are catching fire because of a general weakness in the dollar. The jump in gold sent gold stocks and options soaring. Take a look at some of the returns from Monday:

Barrick Gold (ABX, $38.14, up $3.04)
October 40 call (ABXJH, $2.20, up $1.20), or 120%

Goldcorp (GG, $36.29, up $4.11)
October 37.50 call (GGJU, $2.10, up $1.20, or 133%

Gold Fields (GFI, $9.72, up $1.16)
October 10 call (GFIJB, $0.91, up $0.51), or 128%

Newmont Mining (NEM, $44.43, up $2.48)
October 45 call (NEMJI, $2.50, up $0.85), or 52%

I mentioned on September 3 that gold was getting cheap and many of these stocks and options were much lower. The October options I’ve listed may have more room to run if gold continues its rally but as we have seen with this market it’s hard to say what’s next.

Rick Rouse
Rick@OptionsMentoring.com

The market opened with a bang on Tuesday as Wall Street got excited that Hurricane Gustav did not cause any significant damage or oil-supply disruptions over the holiday weekend. However, by the end of the day the Dow gave up a 250-point gain and ended the session down 26 to 11,516. Like a roulette wheel going from black to red, the market’s fortunes seemed to change on one spin yesterday. It wasn’t really the financial stocks this time around that did the market wrong, the Dow is simply running into very strong resistance at 11,800.

The S&P 500 jumped 25 points to 1303 but ended the day at 1,277, down five. The Nasdaq had gained over 45 points to 2,413 before finishing at 2,349, a drop of 18. Same story here. Both indexes tested serious resistance levels - 1,320 for the S&P and 2,450 for the Nasdaq.

Oil fell to a low of $107 before settling at $109 and change. While this was great news for the market, Gold got absolutely hammered. At one point, the yellow metal was down $40 and ounce but managed to close above $800 ($810.50 to be exact). Still, a $25 drop was worth mentioning. Of course, this was bad news for Gold stocks but good news for us. We have played the Gold bounces before and we are getting close again to playing another one.

September is historically a “not so good” month for the market and October follows. And we all know that some of the biggest market crashes, ever, have happened in October. Anyone remember October 19, 1987, other wise known as “Black Monday”? That was the day the Dow fell over 500 points, or 22%, to finish at 1,739. A crash of that magnitude would be like a 2,500 point drop for today’s Dow. That seems a little far fetched, huh? Now, I’m not saying that the market is going to crash or that we are going much higher from here but it’s important to step back and analize things.

Two years later (October 13, 1989) the market also suffered a “mini-crash” as the Dow fell nearly 200 points, or 7%, to close at 2,569. Back then, the debacle was blamed on a failed leveraged buyout involving UAL Corporation and United Airlines which was its parent company. Also adding fuel to the fire was the collapse of the junk bond market.

We have had a few “crashes” since then but you get the picture. With the mortgage mess the way it is, and the finacial stocks acting the way they are, all I am saying is that anything can happen. That is what makes the market so freakin’ awesome. We could bust through resistance and go on to new highs, stall at current levels and fade, or simply crash and burn. I certainly hope the latter doesn’t happen but as hard as it is sometimes, sometimes you have to “think outside the box.” You always have to remember the market doesn’t care what side of the trade you are on.

This ought to get interesting…

Rick Rouse
Rick@OptionsMentoring.com

Oil prices are up $6 a barrel this morning, its highest level in over two weeks, as escalating tensions with Russia heat up. The price of oil is at $121 and change and could go higher if a disruption of supply to Western countries is forthcoming. As you know, I was in the camp of oil going back above $120 before it got to $100 but the turn has been on a dime causing a huge jump in gold.

Russia is outraged about a possible deal between Washington and Poland to install a missile defense system in Eastern Europe and those concerns took center stage today. The defense system is seen as a threat by Moscow and other factors such as Storm Fay, and a weaker dollar has added a lot of pressure on oil today.

People are waking up to the fact that this is a huge deal and the continued presence of Russian troops in Georgia could keep the fire burning for higher oil prices. Last Friday I mentioned the gold stocks with some January call options and was hoping to scale into a position as oil headed back up. However, these positions “gapped” up so the entry prices are a lot higher than they were. With the sell-off in gold many traders started taking positions last week and it certainly is paying off today. Here is a look at the action:

Barrick Gold (ABX, $36.39, up $2.68). The January 35 calls (ABXAG, $5.00, up $1.40) were at $3.10 on Friday.

Goldcorp (GG, $34.98, up $2.55). The January 32.50 calls (GGAZ, $6.00, up $1.50) were going for $3.30.

Gold Fields (GFI, $9.05, up $0.39). The January 10 calls (GFIAB, $1.10, up $0.25) were trading for 88 cents.

Newmont Mining (NEM, $45.01, up $1.76). The January 45 calls (NEMAI, $4.90, up $0.90) were profiled at $3.35.

If you got into these trades last Friday or earlier this week, protect your profits. No one could have predicted the $6 jump in oil this morning but the Goldman Sachs (GS, $154.55, down $3.70) call of oil at $150 is looking like a real possibility if the tensions with Russia don’t ease.

Rick Rouse
Rick@OptionsMentoring.com

We might as well get accustomed to talking about oil on a regular basis, as if we haven’t already, right? There are so many things that oil effects right now that change has become inevitable to find cheaper, alternative fuels. That’s a good thing as far as trading oil goes although I believe the change should have happened 15-20 years ago.

Ten years ago the hype was fuel-cell battery stocks and look what they have done. Wall Street was banking on names like Ballard Power (BLDP, $4.46, down $0.09) and Fuel Cell Energy (FCEL, $7.62, down $0.27) to carry us to a new wave of energy investments. In March 2000, Ballard was trading at $130 a share and Fuel Cell Energy was going for nearly $50 the same year.

Of course, 10 years later there are now dozens more companies that do the same thing that Ballard and Fuel Cell have been involved in for years. The point being is that oil was around back then, still is today, and will be in the future no matter what technology brings.

As far as today’s oil prices, oil set a record high of $147.27 on July 11. Yesterday, oil jumped above $115 per barrel as Tropical Storm Fay approached Florida. The storm is not expected to disrupt operations in the Gulf of Mexico but nonetheless, the market was nervous yesterday. Oil finished the session at $112.87 a barrel.

The recent retreat has given the market a boost over the past month but we didn’t start the week off on a good note. Oil has been a problem for the market in the past and it seems like the latest rallies are stalling because of the financial companies. Even if you’re not the gambling type, a small bet on higher oil prices could actually lower the risk of your portfolio, since the price of oil has lately tended to move inversely to stocks and bonds.

But that’s not the trend right now. Lots of traders have been betting on lower prices and some have done well while others have been scorched. With so much action around us, I wanted to mention a couple of ways that traders are playing oil.

If you are an oil bear and think oil is headed lower you could trade the ProShares UltraShort Oil & Gas (DUG, $39.35, up $0.97) ETF (exchange traded fund). When oil falls, the shares go up. DUG is currently above its 200-day moving average and began moving higher in early July. If you want to double your bet you could also take a look at the new Powershares DB Crude Oil Short (DBO, $42.88, down $0.38) ETN (exchange traded note).

If you are a oil bull and think oil is headed higher you could go with the U.S. Oil Fund (USO, $91.26, down $0.54) which tracks prices of West Texas light, sweet crude oil. You could also take a look at the iPath Crude Oil ETN (OIL, $67.15, down $0.66) as well.

All of these ETN’s and ETF’s have options you can trade so play on paper first if you don’t understand them.

Rick Rouse
Rick@OptionsMentoring.com

Wow. Just when it appeared gold was “off to see the wizard..” and was headed for $1,000 an ounce it is now trading for under $800 an ounce. The 20% drop has happened in just six weeks. On July 1, gold was going for $940. This morning, gold was trading at $795. There is support for gold at $770-ish, but a break below $770 could take the precious metal down to $750.

Meanwhile, oil is down 25% from its high of $147 a barrel as it is going for $111. I had mentioned the $110 level as a battle line but I’m in the camp of oil going back to $120 before it tests the $100 level.

Then there is the dollar. In dollar has hit a six-month high versus the euro as the currency was down 0.7% to $1.47. The dollar has gained 5% this month and continues to rally as inflation will restrict the Fed’s ability to cut rates. The weaker growth in Europe has started to hit the euro hard and it could get worse before it gets better for the euro.

A firmer dollar typically pressures gold which is often seen as an alternative investment or safe haven to the U.S. currency. A stronger dollar also makes dollar-priced commodities more expensive for holders of other currencies. They work hand-in-hand and it’s good to know these things. When the market was tanking in early July and oil was rising, we were able to hop into the gold stocks for a quick bullish play on gold. We set stops, made money and got out.

I’m not ready to go long just yet on the gold stocks or call options but there will come a day when we do. Just be patient. Take a look at our gold watch list and see where we were then compared to now. The comparisons are from July 1 and the options are the ones we will watch. Do not take any action, yet.

Barrick Gold (ABX, $32.49, down $1.09), was $46. January 35 calls (ABXAG, $3.10, down $0.60).

Goldcorp (GG, $29.95, down $0.97), was $48. January 32.50 calls (GGAZ, $3.30, down $0.70)

Gold Fields (GFI, $8.83, down $0.26), was $12.70. January 10 calls (GFIAB, $0.88, down $0.17.

Newmont Mining (NEM, $41.92, down $0.98), was $53. January 45 calls (NEMAI, $3.35, down $0.60).

It will be interesting to see if the market can hold its recent rally if oil heads back up. Over the short-term, I still see a firmer dollar and lower oil prices. This means the outlook for gold remains cloudy.

Rick Rouse
Rick@OptionsMentoring.com

The market is on the upswing as we head to lunch following yesterday’s huge loss. Oil is down a little over $3 to $121 level and the talk is it could be on its way to $100 a barrel. Just a few weeks ago we were approaching $150 so the continued slide in oil is having a positive affect on the market.

The market also got some good economic news as the Conference Board’s July index of consumer confidence rose slightly to 51.9 from 51 in June. Consumer spending accounts for more than two-thirds of U.S. economic activity so the uptick was welcomed news.

The next stop for oil would be the $117 level which could pave the way for a slick road to $100 a barrel. Of course, the market may be getting ahead of itself but comments from OPEC’s president that oil’s current price is “abnormal” and could fall to $70 or $80 is fueling the fire. Oil is at a 10-week low and the recent slide has also coincided with a stronger U.S. dollar.

The dollar is at a 5-week high and a stronger dollar is pushing commodities prices lower. Copper, gold, and natural gas are all significantly off their highs of just two weeks ago. Barrick Gold (ABX, $42.63, down $1.57), Goldcorp (GG, $39.55, down $1.40), Gold Fields (GFI, $11.97, down $0.09) and Newmont Mining (NEM, $47.70, down $1.41) are all trading lower today.

Today’s rally can certainly be contributed to the fact that oil is lower. But any sustained rally is only likely to occur if oil continues to retreat. It’s tough to say if we get a straight drop to $100 a barrel for oil but if we do and it can stay at $100 a barrel or below, it will certainly help stabilize the market over the near term.

Rick Rouse
Rick@OptionsMentoring.com

It was an ugly day for the market as the Dow officially fell 394 points to close at 12,209. Oil was the main culprit once again as it soared over $11 to close just under $140 a barrel. A weak unemployment report didn’t help matters either. The Labor Department said the U.S. unemployment rate jumped to 5.5% in May from 5.0% in April. Wall Street was expecting a slight increase to 5.1%. Add it all up and it spelled trouble from the start. In fact, the three major indicies didn’t even make it into positive territory at all. Along with the Dow, the Nasdaq (2,474, down 75) and S&P 500 (1,360, down 43) both fell 3% as well.

I’ve been talking about key support levels for a couple of weeks now and here is a reminder: “For the Dow, a break below 12,000 could lead to 11,750. If this level is broken look out below. The S&P 500 would need to fall to 1,325 then 1,275 for the bears to start coming out in force. The Nasdaq has lower level support at 2,375 followed by 2,275. A break below 2,200 could spell trouble.”

Today’s decline was bad but if you’ll notice, the market has become very volatile which is a great thing for options traders. We’ve seen the Dow this week alone have four triple digit days of gains and losses. And expect more of the same as oil will likely continue to rise as well as the nation’s unemployment rate. Want reality? The unemployment figures were the largest gain in the government’s unemployment reading in more than 20+ years…

In early May when the market was rallying to new highs I mentioned the VIX (Chicago Board Options Exchange’s volatility index) was under 19. The VIX (^VXN, 26.04, up 3.19) soared 14% as the market plumetted. Tradionally, if the VIX is at 30 or more then it means the market is nervous and it was crystal clear that this was the case with investors today.

So are we headed lower? I could take a guess a say “yeah, we’re headed lower” but no one really knows what the market will do Monday. As far as the VIX goes, it was at 35 on March 17 when the S&P 500 stood at 1,276. I would imagine if either of these numbers are reached then, yes, we are headed even lower.

Rick Rouse
Rick@OptionsMentoring.com

8AM

Oil and Energy stocks have done tremendously well over the last few years and investors are wondering out loud if they still have room to run or are many of them overpriced? The answer of course lies in your own due diligence but Nabors Industries (NBR, $39.53, up $0.72) is pushing all-time highs despite a 12% decline in Q1 profits.

The other day I mentioned that Transocean (RIG, $157.30, down $0.10) was the biggest offshore oil driller in the world. Nabors happens to be the world’s largest land oil driller with operations in North America, Africa, Latin America, and the Middle East.

Even with the decline in 1Q profits that were reported in April, the company did $0.81 versus $0.76 which is what Wall Street had expected. Revenue for the quarter was $1.32 billion while analysts had expected revenue of $1.28 billion. The results from North America businesses was what weighed in on the decline of its profits but this was offset to a degree due to the strength of business outside North America. Nabors’ international businesses posted a 37% gain for the quarter.

The stock was at 52-week lows in January when it was trading in the low $20’s. However, judging by the success it has had so far this year, investors have been building positions in Nabors’ as many believe the drilling stocks have lagged their counterparts.

The stock closed just below $40 on Thursday and looks ready for “blue-sky territory”. We know that drilling is declining in North America but on the international front, new markets like Mexico and Russia are look promising for Nabors, and the company continues to dominate in the Middle East and Africa. Since international contracts are generally multi-year deals Nabors will not only benefit for the continues demand for oil but natural gas as well.

Rick Rouse
Rick@OptionsMentoring.com

It’s hard to believe sometimes but I can remember when gas use to be under $2/ gallon. And it wasn’t that long ago. The fist time gas hit two bucks a gallon was in May 2004 (East Coast prices). Up until March of 2005 gas would hover around this mark but this would be the last month you could get gas for less than $2/ gallon. In September of 2005, gas hit $3/ gallon. As of this week the average price of regular ‘ol gas is $3.60/ gallon. Wow.

Well, back then it wasn’t too bad to drive your SUV because it may have only cost you $50 to fill-up for a week. Today it’s nearly double. A year ago oil was trading for around $60/ barrel. Today we broke $122. And according to a Goldman Sachs analyst, oil could be on its way to $150-$200/ gallon. That would put gas at $5 to $6/ gallon.

Some believe that oil supplies are strong right now with one analyst countering the $200 notion by saying oil could easily be at $40 over the next two years because supplies are “comfortable”. Here’s hoping for the latter because there will be many, many people who cannot and will not pay $6/ gallon.

And who’s to say this isn’t possible? Already there is strong demand for oil from countries such as China, India, and Russia. This demand from other countries will continue to support higher prices and will keep global oil demand on the upswing. On the flip side there’s also concerns about falling oil production in Russia and Mexico which are huge players in the oil industry.

So where does this all lead us? I certainly don’t know because I’m not an economist but I do know that $4/ gallon for gas is just on the horizon.

Rick Rouse
Rick@OptionsMentoring.com