Regardless of the color of the book, traders did not like what they saw today. Crude traded below the 50 day MA but did manage a close above that level; in September at $76.30. We would be selling rallies if forced into the market, still thinking there is more down side. By the conclusion of the week we would expect an attempt at $74 in the lead month. Natural gas appeared to break out to the upside today but before we get too excited, understand yesterday was options expiration and today is the LTD for front month futures. Tomorrow’s action will be key to see follow thru and the AGA inventory report also comes out. We suggest purchasing October and November 50 cent call spreads.

The stock market did not like the Beige book and could be rolling over from here. Clients exited their August 1150 ES calls and bought back their September 1000 ES puts today at just better than 6 point ($300/per). This leaves them long September 1075 ES puts with a target of 1025 on the futures. If we roll over from here we will be looking to scale into shorts in various indices for clients with stops above the recent highs. We’re perplexed in the Treasury complex and have our hands full with the indices and currencies so we will stand aside until we get a clearer picture.

Last week, we mentioned stocks could surprise by year-end. Some hopeful signs supporting that thesis are being given in the commodity, currency, and stock markets. Specifically, recent moves in the U.S. dollar, crude oil, Australian dollar, S&P 500, emerging markets, and Sweden provide some additional evidence a double-dip recession is not as likely as some believe.

Despite monster deficits, the U.S. dollar has served, somewhat ironically, as a safe haven currency since the financial crisis began in late 2007, early 2008. While the U.S. dollar’s impact on the markets is often overstated, the pattern has been when investors are risk averse, they buy U.S. dollars; when they are more willing to embrace risk, they tend to sell U.S. dollars.

Back on June 9th we updated clients and also published on Seeking Alpha, pointing out a possible rally in Crude Oil, and the ETF and ETN products that track the commodity such as United States Oil Fund (USO), PowerShares DB Oil (DBO), (OIL) iPath (S&P GSCI Crude Oil Total Return ETN), United States Brent Oil (BNO) and the United States 12 month Oil Fund (USL). Since the June 9th note, USO has rallied over 8% to $35.66, including a healthy 3 plus percent rally last Friday, and has traded as high as $36.04 in recent sessions, while USL has rallied over 5%.

In our original June 9th note, we cited the recent BP mishaps and how the government will be more closely regulating oil rigs and their drilling operations, which in effect may reduce oil supply and increase oil’s price. Secondly, we spoke about the effect that the weakening Euro has had on oil’s price and any rebound in the Euro (FXE, the Currency Shares Euro ETF has rallied over 4% from the recent June 9th low of $118.79) should contribute to further strength in Oil as investors may shift money that was previously invested in U.S. Dollars and Gold back to the Euro. In short, a U.S. Dollar price decrease and Euro increase will potentially be bullish for Oil the commodity.