Early Look: Oil Plummets As Gustav Weakens

The market is soaring in early trading, on the heels of another big drop in the price of oil. Hurricane Gustav failed to cause any serious damage over the weekend, and that has helped push oil prices -7% lower. Natural gas prices are also down sharply.

The energy sector is the weakest perfomer so far (-3.7%), while the bank index is soaring (+3.4%). Retail stocks are also faring well as the drop in oil and gas prices is seen as a boost to the consumer.

The dollar is also strong this morning, which is weighing on commodity prices across the board. Anything remotely related to commodities is being sold this morning, from oil to gold to ag to steel. The 10-year yield is higher at 3.82%.

Asian markets were mostly lower overnight, on the drop in energy prices and some political instability as Japan's PM stepped down.

Last week saw a lot of day-to-day volatility, but volume was very weak as many were on vacation. So this week's action will be viewed as more meaningful, and this morning's strong start is a welcome sign for the bulls.

I would say that we need to see the S&P 500 close above 1300 on strong volume for starts. I would also like to see the SPX take out 8/11 highs at 1313. For the Nasdaq, we need to close above the 200-day at 2411 for starts, and then see 2475 taken out.

Last week I mentioned that I had put on some hedges in our portfolios, as I was worried about the market. Those hedges weigh heavily on days like today, and I will most likely get stopped out on them by the close today.

long SDS, SKF