10/23/2014 6:10:32 AM

Good morning Traders,

As we look to evaluate the health of this bounce, our studies on money flow come into focus. Initially, we would look at this indicator:

And while that looks bullish still, digging a little deeper for the ex etf data:

This has us a little cautious.

Moving to oil:

As you can see, oil inventories CONTINUE to build. If supply and demand were the only components of price action, that'd make trading oil easier. At this point that's the case. But we'll be looking to buy some calls for the bounce when it initiates. Our last oil option trade did very well...

One of our oil indicators positioned the previous trade very well.

And moving to the stock market, we must first look at bonds. Even if bonds are a bubble, and they sell off, that'll be bullish for stocks - at least initially.

So we have the fuel for the stock market to rally. Did we correct enough on Wednesday to negate the retest? This simple view of advancing stocks in the Nasdaq suggests a bullish market (prices stable with internals correcting).

The third component, sentiment, is getting a little bearish on a weekly basis looking at the AAII data and some option data. We may need a deeper correction to set the continued bull in motion.

Regards,