DROP IN OIL DOESN'T HELP STOCKS -- MARKET INDEXES SLIP BACK UNDER 50-DAY AVERAGES -- EMPLOYMENT REPORT DUE TOMORROW

OIL RISES -- THEN DROPS... It was a strange day to say the least. OPEC announced this morning the biggest production increase in seven years and oil prices rose. As a result, stocks opened lower. This afternoon, an increase in oil inventories pushed crude 75 cents lower to $39.21 -- and the stock market fell even harder. The Nasdaq market experienced the biggest percentage loss (-1.4%)-- influenced by a 2.3% drop in the Semiconductor (SOX) Index. All of the major stock indexes closed back below their 50-day moving averages. Chart 1 shows the SOX Index breaking its 50-day line today. Chart 2 shows the Nasdaq Composite falling back to its 200-day average at 1960. The Nasdaq pullback also undid some of its recent upside leadership. Its relative strength line slipped back under its short-term moving average.

Chart 1

Chart 2

EMPLOYMENT REPORT TOMORROW MORNING... The employment report for May is due tomorrow morning. The last two reports had a big impact on market movements in bonds and stocks. Technically, the market appears to have reached a short-term overbought condition. Today's move back below 50-day averages is also a disappointment. If the market sells off further tomorrow morning, two initial support levels I'll be watching in the S&P 500 are 1113 and 1105. (See hourly bars in Chart 3). The former is the trough hit on Tuesday. The latter is the peak formed on May 19 (see circles). A rising support line also sits near 1105. That would also be about a fifty percent retracement of the rally off the May 17 bottom.

Chart 3