As Debt Ceiling Deal Inches Closer To Being Inked, A Short Play On This Sector Is On Watch
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The market continues to stagnate, chopping along in a range that has held strong for several sessions at this point. With the debt ceiling talks still in a stalemate it is likely that inking a deal could be the catalyst to break out of this range. However, CPI from a couple weeks ago was also thought to be a possible catalyst, but turned out, it didn’t actually pack a punch strong enough to do so.
For now, expect that the range will continue to hold… until it doesn’t. Looking at the S&P 500, 4100 is the level to watch for a move to the downside, while 4150 is the level to the upside. A break of this level to the upside could take us back to 4200 in a hurry. However, this would depend on the rest of the market coming to the support of the big tech names like Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL), which have been the main stocks that have held the rest of the market up.
As you can see by looking at the heat map on FinViz, not too much strength in the market with many sectors still slightly red. Again, this could be subject to change should the market be hit with some exuberance if we are able to put the debt ceiling debate behind us. The market isn’t very fond of uncertainty, and while it is likely default will be avoided, this is still providing enough uncertainty to where investors and the big institutions are putting any buying, and for that matter, selling on pause.
With all that being said, let’s look for a possible trade we can add to our watchlists.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
As the price of oil continues to decline, the oil industry is on watch for a possible bearish play. Especially if the market finds some strength, it is not unreasonable to assume money will be syphoned from this area of the market to pile into names like those listed above or through out more risk on sectors. The price of oil has found some support at the 70-71 area, setting up a better entry for traders that are bearish on this sector.
Remember, we as traders never want to have knee jerk reactions to a price move, but instead want to look for the best possible entry given the sentiment of the market, as well as the sector we have on watch.
For now, we are still patiently waiting for the market to give us trend before we go whole hog in to a trade in one direction or another. As we said before, this consolidation can eat away at the value of our contracts because of Theta, so instead of trying to predict where the market will take us, sitting on our hands is not the worst thing we can do.
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