Here is Saturday's commentary I wrote for Investools.com. My watchlist will be out later this evening.

High oil prices sent stocks south this morning on this option expiration Friday. However, a late day rally brought stocks back to the same levels in which they closed- relatively unchanged. The Dow finished lower by 5 points closing at 12,986, while the NASDAQ lost 4 points finishing the day at 2528. The S&P produced a one point gain, ending the week at 1425. Overall, this was a very positive week for the stock market, led by the NASDAQ, which produced a 3.4% increase this week.

Oil prices are, and will continue to be the markets top concern in the intermediate future. As prices are trading at all time highs, so are average fuel prices. The markets concern is that these conditions will put added pressure on the consumer in the future and stunt their spending patterns. However, government stimulus checks started arriving in the mail over the last few weeks. We've discussed the XLY as a way to track discretionary consumer spending, and since breaking out last month, the fund has seen a 9% increase over the last several weeks. So far, this is part of the reason that I am so bullish on "the consumer" right now.

Gold and oil prices soared higher today leaving the yellow metal north of $900 per ounce, while crude oil prints another all time high at $127.82 per barrel. The dollar traded lower against most major currencies.

Good housing construction data surfaced earlier today, giving investor's added comfort that the housing market slump might be nearing a bottom. The XHB, which is an ETF that tracks home building companies, finished the day with a small loss. Not to mention, looking at the chart, does not display the same strength it has been showing since early January. However, keep an eye on it as it trades near support.

Figure 1: Relative weakness in the XHB, as it heads toward support

Follow Up

Dryshippers and solar stocks were on fire this week. They were a very hot commodity, especially if you played into them over the last few weeks as suggested.

Here are two watchlist candidates from 2 weeks back; CSIQ and GNK.

Figure 2: A great move in GNK. Click here to read the archived story.

Figure 3: CSIQ, a top market performer this week. Click here to read the archived story.

As you read the archives, you'll notice that the two technical set-ups are very similar. As stocks trade into new highs, this is where prices tend to gain some momentum and volume. Speaking of which, let's talk about how to approach next week.

Outlook

As you gear up for next week, you will notice that most stocks are over extended. Especially those that belong in the industry groups I have mentioned over the last several commentaries I have written. The VIX has traded down to its October 06 lows, which means that the market has become increasingly optimistic about the fundamental conditions of our market and economy. Not to mention, there have been unbelievable bull markets taking place right before our very eyes to back up this sentiment. With the VIX at these levels, the playing field has been leveled once again for option buyers.

As most of the stocks that we have discussed are overbought, the bears will be looking look for opportunities to sell into this recent strength. Sectors that have been in longer term down trends will be where they will focus their efforts. A few examples of groups that have rallied in longer term downtrends are foreign and domestic airlines, pharmaceuticals, and insurance companies. Having some bearish exposure in market conditions like this help to balance the fluctuations that take place in your account. Remember, the key to success in the market is not based on the stocks you pick; it is based on simple principles like position sizing and diversification.

As for the bulls, they will be looking for stocks near support in strong industry groups. They will also be looking for breakouts similar to what we discussed with CSIQ and GNK. As the bulls look for opportunities next week, the problem they will have is finding the right buying opportunities in stocks that are already overbought. For those that are option sellers, timing becomes less of an issue, but for option buyers, a good entry can make or break a trade. Make sure you are patient enough to let good entries present themselves to you, according to your trading plan.

Homework

Take an opportunity this weekend to search though your ETF watchlists. Find at least 3 ETFs that meet your pre determined selection criteria for the week ahead.

Have a good weekend,

Jeff Kohler
Investools Content Manager