Swing Trader’s Brief: Oil Surges and the Market Tests Key Levels

Every week we step back and look at the bigger picture before the trading week begins.

Right now the market is facing a few pressures all at once. Futures on Sunday show weakness across the board. If things hold into Monday morning, the market will likely open below an important level that has been holding since December.

That level matters because it defines the trading range we have been stuck in for months. Breaking under it shifts the tone of the market. It does not mean the market collapses, but it does mean traders should move carefully.

At the moment the futures are showing:

SPY down about 1.6%
Nasdaq down about 1.7%
Russell down around 3%

Small caps and momentum stocks are taking the biggest hit.

One major reason behind the pressure is oil.

Oil Is Back Above $100

Oil has surged back above $100 per barrel following developments in the Middle East. At the start of the year oil was trading near $50. In January it was still around the low 50s. Now it has doubled in price.

That kind of move affects much more than energy stocks.

Higher oil prices ripple through the economy:

Transportation costs rise
Airlines face higher fuel costs
Consumers pay more at the pump
Companies across sectors see margin pressure

Because of that, the market tends to react quickly when oil spikes like this.

The current concern is not just oil itself. It is how fast the move happened.

Key Levels Across the Market

Looking at the major indexes, several levels matter this week.

SPY appears ready to open below the trading range we have been watching for months. If that holds, traders will need to respect the possibility of more downside pressure.

Nasdaq (QQQ) still has room before testing its 200 day moving average. That level often acts as major support in larger pullbacks.

Russell 2000 (IWM) has been hit the hardest. Money has clearly been coming out of momentum stocks and smaller caps. A test of the recent range lows would not be surprising.

In this kind of environment the strategy is simple.

Trade cautiously.
Keep position size smaller.
Take selective opportunities instead of forcing trades.

Sector Rotation Is Still the Story

One of the most interesting developments continues to be sector rotation.

Since November we have been watching money flow into industrials while software sold off. Industrial stocks ran from roughly 147 to about 180 on the XLI ETF during that stretch.

Now that trade is starting to shift.

Industrials have pulled back sharply and are now testing the 50 day moving average. Within that sector, the weakness is concentrated in commodity related companies, shipping, and transportation names.

At the same time software has started to wake up.

The beaten down software sector has been showing strong accumulation. Large green candles and heavy volume are appearing across the group. Some of the highest volume we have seen since the pandemic period is coming into these names.

That kind of accumulation often signals institutional buying.

The rotation looks like this right now:

Money leaving parts of industrials
Money returning to software
Hardware and semiconductor names cooling off after strong runs

When markets are choppy, these rotations often create the best swing trading opportunities.

Commodities and Energy

Gold recently looked like it might be forming a top and has not yet broken to new highs.

Silver looks even weaker and could be setting up for another leg lower.

Energy is the opposite story. Oil and energy stocks have been extremely strong. At some point a parabolic move like this can create a strong short setup, but that usually requires a clear signal first. Trying to step in front of a surge rarely works.

For now energy remains strong.

Seven Stocks on the Watchlist

Here are several names worth watching this week.

Palantir (PLTR)

Palantir has been under pressure recently but made a strong move into resistance. On Friday it pushed right into the 200 day moving average before pulling back.

Aggressive traders may take a small position looking for a breakout. More conservative traders will wait for a close above the 200 day moving average before targeting the top of the range.

Coinbase (COIN)

Crypto related names had a strong move after news around the proposed Genius Act, which would allow platforms to earn interest on certain cash balances.

COIN broke out and pulled back toward the 9 EMA. The chart suggests a potential bottom is forming with solid volume supporting the move.

Adobe (ADBE)

Institutions appear to be accumulating Adobe. The stock still has room to move toward the 50 day moving average, which could act as the next test level.

Southwest Airlines (LUV)

Airlines have been hit because of rising oil prices. LUV had been in a strong trend but recently pulled back.

If the stock can bounce and close above the open gap area it could offer a signal. If it continues lower, watch the 200 day moving average for support.

FedEx (FDX)

Another transportation name reacting to oil prices. The stock has been trending strongly but could test the 50 day moving average soon. A bounce from that level would be worth watching.

Lockheed Martin (LMT)

Defense names continue to show strength. LMT has been trending higher and is now pulling back toward the 9 EMA after a breakout. The overall structure remains strong.

Software Sector

Beyond individual names, the software group itself is worth attention. The combination of heavy volume and strong accumulation signals that institutions may be stepping back into the space.