Traders continue to buy the dip in the U.S. markets. Stocks opened lower this morning but 10 minutes later bulls were back and pushing stocks higher. There are still worries about the sharp drop in the Chinese Shanghai market and the drop in oil inventories this morning also caught investors off guard. The U.S. dollar is sinking and that's putting a floor under commodities.

Asian markets were down across the board with China leading the way. Wednesday started out quiet with China, Hong Kong and Japan sliding sideways. In the last few hours of trading China fell off a cliff and pulled the rest of the markets lower. At its worst levels the Shanghai was off 5% and closed with a 4.3% decline. This follows last week's 6.6% drop and the Chinese market is technically in a "bear market" having fallen more than 20% in just the last two weeks. Investors need to keep this in perspective. The Shanghai started the month of August up 100% from its 52-week lows. The Hong Kong Hang Seng gave up 1.7%. The Japanese NIKKEI index lost 0.79%. Many market watchers expect trading to slow down in Japan as investors wait for the upcoming August 30th election.

The sharp late-day plunge in Asian markets weighed on stocks in Europe. All the major averages gapped open lower and then slowly crawled their way higher throughout the rest of the session. The German DAX index lost 0.36% and was hampered by a 14% drop in shares of Volkswagen. The French CAC-40 index climbed back to almost unchanged to close down 0.01%. The English FTSE actually closed in positive territory up 0.08%. Investors ignored news that manufacturing orders in Britain came in lower than expected. The real shock today was the minutes for the latest meeting by the Monetary Policy Committee. You may recall that two weeks ago England raised their quantitative easing policy by another 50 billion pounds. The minutes of the meeting revealed that some of the policy committee wanted to raise it by 75 billion pounds.

Here in the U.S. the oil inventory report was the surprise of the day. Economists were expecting oil inventories to rise by 1.2 million barrels. Instead supplies fell 8.4 million barrels. That was the biggest drop in more than a year. The Energy Department said oil imports plunged 15%. Imports haven't been this low since last year's hurricane season. Gasoline inventories were forecasted to fall 1 million barrels but came in at -2.18 million barrels. This unexpected 8.4 million-barrel drop in inventories has sent crude oil soaring. Yesterday oil was up about $1.80. Today oil is up more than $2.40 and trading above $71.50 a barrel. This is fueling strong gains for the oil and oil service stocks.

Outside of the energy space biotech and drug stocks are showing the most strength followed by miners and then technology. Airlines are down on the rise in oil and homebuilders are under performing today. Currently the S&P 500 index is up 0.8% at 998. The NASDAQ composite is up 0.7% at 1970. The Dow Industrials are up 0.8% at 9297. The small cap Russell 2000 index is up 0.79% at 560.

Let's take a quick look at charts for the major averages:

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Dow Industrials:

Chart of the Russell 2000 index:

Reviewing the OptionInvestor.com play list for movers I see that FLR came close to testing the $51.00 level again this morning and is now up 1.3%. SDS is down 1.7% as the market rallies. The USO is soaring 3.8% nearing its August highs. Unfortunately the USO has not hit our trigger yet. Our new put play on the DIG has been triggered at $27.75. Solar energy stock FSLR is still sinking and hitting new lows under $130. GMCR has hit our second and final target to exit at $55.50. Weakness in China has helped push SNDA to a 1.9% loss.