FALLING OIL PRICES BOOST GLOBAL STOCK MARKETS
DOWNSIDE REVERAL FROM $40... We recently plotted a long-term chart showing major overhead oil resistance near $40 -- which represented the 1990 peak. Last Thursday, nearby oil futures touched $39.99 before falling sharply. Since then, oil has been weakening. This morning, oil prices are down another 70 cents to $35.90 We believe oil has put in at least a short-term peak -- and possibly even an important peak. The daily chart shows the "key revesal" day on last Thursday -- as prices closed lower after trading sharply higher. The daily stochastics lines have fallen under 80 for the first time in a month -- which also reflects short-term trend deterioration. The chart also shows Bollinger Bands plotted around a 20-day moving average. The first support to be tested is the (dotted) 20-day average. If that's broken (and we think it will be), prices should decline to the lower band near 33.00. That's good news for global stocks, which are starting the week on a positive note.
Chart 1
GLOBAL MARKETS ARE BOUNCING... The global bounce started in Asia. Charts 2 and 3 show bounces in Hong Kong and Japan. The Nikkei 225 is bouncing off important chart support along the 8250 level -- which has been tested five times since last October. Europe is having a strong day as well. Chart 4 shows Germany iShares bouncing from chart support near its October low. The daily stochastic and MACD lines have turned postive. Germany is the biggest and most influential economy in Europe. Higher foreign markets have led to a buoyant U.S. opening -- led by technology.
Chart 2
Chart 3
Chart 4
S&P TESTING INITIAL RESISTANCE... The chart of the S&P 500 is symptomatic of the U.S. market. The chart shows the S&P moving up to challenge the top of its three-week trading range just over 850. A close through that intial barrier is needed to turn the "short-term" market trend higher. The daily MACD lines have turned postive, which is a sign of strength. The 9-day RSI line is testing initial resistance near 50. We think the odds favor an upside penetration. Sector-wise, technology is leading the U.S. bounce -- continuing leadership shown last week. Gold and oil stocks are the weakest sectors -- reflecting softness in gold and oil prices.
Chart 5
