PLUNGE IN OIL BOOSTS STOCKS -- BANKS LEAD FINANCIALS -- JPM, BOEING, AND HERCULES BREAKOUT -- DOW EXCEEDS 50 DAY AVERAGE

CRUDE BREAKS 20-DAY LINE... Crude oil continued its fall that started last Friday just shy of $50. It plunged $1.74 today to break its 20-day moving average for the first time in two months. Chart 1 shows the dotted 20-day average overlaid on the daily price chart along with Bollinger Bands. Those bands are plotted two standard deviations above and below the 20-day average which is plotted in the middle (see dotted line). During an uptrend, the 20-day line usually acts as an initial support level. Once that line is broken, prices will usually drop to the lower band. That puts the downside target near $42 (see arrow). That level also corresponds to the price peak formed last May. That also makes $42 a logical downside target.

Chart 1

BANKS LEAD STRONG FINANCIALS ... Financial stocks, and banks in particular, may be benefitting most from the drop in oil prices. Last Friday we showed the Bank Regional Holders leading the bank group higher and challenging its June high. Chart 2 shows the RKH breaking through that chart barrier. Chart 3 shows the Bank Index (BKX) not far behind. One of standout performers among the big banks was JP Morgan.

Chart 2

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JP MORGAN BREAKS OUT... One of the Dow's strongest stocks today was JP Morgan, reflecting new interest in bank stocks. Chart 4 shows JPM clearing its June high in decisive fashion. And it did so on rising volumn -- even making the big board's most actives list. Upside leadership by financial stocks is usually a good sign for the rest of the market.

Chart 4

BOEING JUMPS ON BIG VOLUME ... Boeing was the Dow's standout performer. Its daily chart shows the big aircraft maker breaking out to a new 52-week high on very strong volume. It gets even better. The monthly bars in Chart 5 show that BA has also broken through its early 2002 peak at 50 to register to highest close in nearly three years. Its rising relative strength line shows that it's been a steady outperformer over the past year.

Chart 5

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HERCULES CLIMBS TO TWO-YEAR HIGH ... The chemical stock was another star today. The daily bars shows the stock erupting to a new 52-week high on massive volume. Its monthly chart is even more impressive. Chart 8 shows that Hercules may be on the verge of breaking out to the highest level in three years. Chemicals helped lift the Materials group today.

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DOW EXCEEDS 50-DAY AVERAGE... The Dow is the first of the major stock averages to close over its 50-day moving average (Chart 9). It's also challenging initial chart resistance at 10203. That's a more significant test. The S&P 500 closed right on its 50-day line and just shy of its early August peak at 1108. All of the major stock averages remain beneath their 200-day moving averages. While the price action was good, volume wasn't. That will have to change to lure serious money back into the market.

Chart 9

Chart 10