"Enjoying success requires the ability to adapt. Only by being open to change will you have a true opportunity to get the most from your talent." -- Nolan Ryan

There certainly has been no shortage of financial news this week. While the broad major equity indices have seemingly avoided a significant corrective move, the cross-currents beneath the placid surface are quite turbulent. For some, the lure of the Sirens' song only disguises the hunting grounds of the Kraken. Sector rotation, flattening yield curves, dollar valuations, and the implications of monetary policy beyond the immediate have all been on the minds (and in the pockets) of market participants. Perhaps the most persistently troubling of these currents has come from the energy space. I know that some of you have simply avoided this space for a long time. I also know that others are wondering when to either stop, or start taking action to lower your net effective point of entry. You know what they say: "Friends don't let friends dollar-cost average".

For the underlying commodity, WTI crude, heavy Wednesday losses were extended on into Thursday. This was not the first significant beating handed out to crude in a very short timeframe. Bear in mind that as recently as last Wednesday morning, WTI traded with a $48 handle. For now, we do seem to have run into some technical support below $44.50.

OPEC's lack of any kind of ability to significantly alter overwhelming supplies of crude has been exacerbated by U.S. producers as well other non-OPEC players who are not participating in the cartel's extended freeze. OPEC's own participation has been questioned as well. Wednesday morning, the IEA (International Energy Agency) painted a new, more troubling picture of the situation. Global inventories of crude are estimated to have reached a rough 292 million barrels above the five-year average, as of this past April.

The same IEA (not to be confused with the EIA, which is where your weekly inventory count comes from) expects to see non-OPEC production of crude grow by 1.5 million barrels a day next year. The autonomous agency (advising 29 member countries) predicts that demand will rise by just 1.4 million barrels a day. Worse than that, it's not just about crude. Global and domestic demand for gasoline now becomes a focal point as well. Here in the U.S., the EIA (yeah, those guys) showed a surprisingly large build of gasoline stocks for the second week in a row, just as evidence mounts that the summer driving season is not off to its usual "thirsty" start. People are not touring. Not yet, anyway.

The Game

Now, about those entry points. If you are trying to tackle this through the equity markets, most of the smart kids see the key spot for WTI somewhere between $44 and $42 at this point. I know that's wide, folks, but so is "smart kid" opinion on this. The $42.75-ish level is what I am looking for. But keep in mind that many factors go into price discovery regarding commodities, and they do not price like equities. That said, I think the commodity reached a spot yesterday afternoon where nibbling becomes sanction-able. Is this a guarantee? Of course not. How am I doing in the oil patch this year? I'm wearing a sector-specific minus sign that has turned what could be a really stellar half year into a solid one. Like all who play the space, I am adapting.

As WTI approaches $44, I will likely add to my "quality" longs in Apache (APA - Get Report) and Schlumberger (SLB - Get Report) for a myriad of reasons. These are my two names in the sector that I am willing to step to the plate for. (They are also included in the Action Alerts PLUS portfolio, which Jim Cramer co-manages as a charitable trust.) I do speculate in other names, but I would not want to influence anyone negatively just because I am comfortable with a certain level of risk, so those names will go unmentioned.

Importantly, I think the sector is trade-able as long as we do see support where we think we might. If you're in too deep, you may have to learn how to trade around a bad position. In tougher markets, this was considered a real skill -- a skill that has faded as markets have bailed out poor traders for 10 years. You get a screaming run into the $30s and all bets are off. For that reason, don't make any heroic last stands. Get long (er) a little bit at a time. Better to buy less than you wanted and end up underexposed to the upside, than to end up overexposed to the downside. Capisci?

In Other News

-The Bank of Japan voted 7-2 to keep short-term interest rates at -0.1% and to maintain the target yield for Japanese 10-year paper at 0%. The BOJ did not seem to embrace the hawkish undertones seen yesterday at the Bank of England. In the statement, the BOJ acknowledged weak consumer level inflation, and added that they expect the Japanese economy to continue to grow due to both easy fiscal, and monetary conditions.

- For traders, today brings upon you a quadruple witching. Making this simple, that means that both stock market index options and futures expire together with single stock options and single stock futures. The day also brings a bevy of S&P index re-weightings. What does this mean for the guy or gal sitting in front of his or her computer trying to make a buck? High volume, especially on the bells. Increased volatility especially on the bells, and possibly where the greatest imbalances lie, closes that go beyond 4pm. Those of you trading in and out of options late in the day will be frustrated by the level of pinning that you witness. Those of you writing naked options will likely be forced to act ahead of the bell to avoid exposing yourself to unwanted risk.

Macro

08:30 - Housing Starts (May): Expecting 1.216 million, April 1.172 million SAAR.

08:30 - Building Permits (May): Expecting 1.249 million, April 1.229 million SAAR. Housing starts have both contracted and missed consensus for two straight months (on an annualized, seasonally adjusted basis) coming into today. The trend, which has largely gone sideways for two years now, remains intact. Permits have also, for the most part, stayed on trend as well, without the softer last two months. Traders will be watching to see if starts (far more important than permits) can sport an uptick for May.

10:00 - University of Michigan Consumer Sentiment (June-adv): Expecting 971, May 97.1. May's final print disappointed somewhat, but still hit the tape above the original consensus expectation for the advance release. We expect today's number to be in line with that May final. Consumer surveys have a way of impacting the marketplace, and sometimes catching traders off guard. Beware.

12:45 - Fed Speaker: Dallas Fed Pres. Robert Kaplan is set to be the first Fed speaker out of the box in the wake of Wednesday's policy moves. Kaplan is a voting member of the FOMC and is considered to be a hawk. He plans to take questions from both the media and the audience.

13:00 - Baker Hughes Rig Count (Weekly): Last Week total 927, oil 741. It will be interesting to see if the recent breakdowns in the market price of WTI crude have any impact on the pace of growth seen in U.S. oil rigs currently in production. That number has increased for 21 consecutive weekly prints now. Expect 22.

Sarge's Trading Levels

These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.

SPX: 2449, 2443, 2436, 2429, 2420, 2410
RUT: 1426, 1419, 1412, 1403, 1396, 1390

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: CCN ($0.02)

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At the time of publication, Stephen Guilfoyle was long APA, SLB, although positions may change at any time.