BIG JUMP IN ENERGY UNDERMINES RALLY ATTEMPT
CRUDE OIL JUMPS $1.77... A planned increase in Saudi oil production didn't have the desired effect of pushing crude oil below $40. Instead, crude jumped $1.77 to close at $41.70 -- just pennies from a new all-time high. As a result, energy shares were especially strong today. The Energy Select Sector SPDR jumped over 2% on heavy volume. Chart 1 shows the ETF ending back over its 50-day moving average. The biggest energy gain came in the oil service group, which rose over 4.5%. Chart 2 shows the Oil Service Holders bouncing off long-term support at their 200-day moving average. There again, volume was very strong. The jump in energy undermined a rally attempt in the rest of the market. Energy wasn't the only commodity gainers today. The CRB Index gained an impressive 4.70 points today as 14 out of 17 commodities closed higher.
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ANOTHER QUIET DAY WITH LITTLE VOLUME... Chart 3 shows the Dow Diamonds backing off from their 200-day line at 100.60. Chart 4 shows the S&P 500 SPDRs closing higher, but on lower volume. That shows a continuing lack of conviction in either direction. In my view, a decisive rally on expanding volume is needed to restore market confidence. So far, that's been lacking. Tobacco was a big drag on the market. So were the drug stocks which continue to pull down the healtcare sector.
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TOBACCO TUMBLES AGAIN ... A couple of weeks ago we showed the breakdown in tobacco stocks on heavy volume. That bearish action pushed the Altria Group under its 200-day moving average. Chart 5 shows the tobacco stock tumbling to another six-month low today on heavy volume. RJ Reynolds fell right along with MO. Those were the two biggest percentage losers in the S&P 500.
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PHARMAS WEAKEN... The healthcare sector continues to weaken. Part of the selling is coming from drug stocks. One of day's weakest ETFs was the AMEX Pharm Holders. The daily chart thows the ETF closing under its 200-day moving average. The biggest holding in the ETF is Pfizer, which is bearing down on its 200-day line.
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$40 OIL REMAINS A PROBLEM... Historically, oil rallies to $40 have caused problems for the stock market. That's been the case this year as well. Now, however, oil is trading over $40 for the first time in history. Today's action shows how hard it is for the market to gain ground in the face of rising energy prices. It's hard to imagine the market staging a serious rally as long as oil stays over $40.
