RISING OIL KEEPS BLUE CHIPS IN TRADING RANGE - VOLUME PATTERN ISN'T VERY GOOD - NASDAQ 100 FAILS ANOTHER TEST OF 50-DAY AVERAGE -- SEMIS BACK OFF FROM RESISTANCE

CRUDE NEARS $55 TARGET ... Yesterday's spike in crude oil pushed it to $53 for the first time since last October. That puts the price of this key commodity within a couple of dollars of the top its recent trading range. That will be an important test for a lot of other things -- including energy stocks and the rest of the stock market. Right now, the higher trend in oil is keeping the blue chip market averages in their recent trading ranges.

Chart 1

DOW AND S&P 500 STRUGGLE AT OLD HIGHS ... Charts 2 and 3 show the Dow Diamonds and the S&P 500 SPDR (SPY) struggling with resistance levels formed at the end of December. One of the more disturbing aspects of the recent rally has been the volume pattern. If you compare the volume bars on both charts, you'll see that the down days have shown a tendency to have higher volume (red bars). In a rising market, it should be the other way around. The volume on up days (green bars) should be bigger than the volume on down days (red bars). That suggests to me that the averages may not be able to mount a serious move into new highs at this time. That'll be especially true if oil prices continue to climb. Another negative factor for the stock market has been the inability of the Nasdaq market to mount a serious rally.

Chart 2

Chart 3

NASDAQ 100 BACKS OFF FROM 50-DAY AVERAGE ... The Nasdaq 100 Shares (QQQQ) tried again unsuccessfully to climb back over its 50-day moving average. Yesterday's failure was also accompanied by heavy volume. That's not a good sign either. As I've suggested several times before, I believe that any hope for an extended market rally rests with the ability of the Nasdaq to mount a serious rally. So far it hasn't been able to do that. Its failure to do so could keep the blue chip average stuck in a trading range. Part of the Nasdaq weakness is coming from semiconductor stocks which are in an important test of their own.

Chart 4

SEMICONDUCTOR HOLDERS BACK OFF ... Earlier in the week, I pointed out that the Semiconductor Holders (SMH) were involved in an important challenge of their December highs. Important for it, for the technology sector, and the entire market. In fact, this may be the most important test going on at the moment. Chart 5 shows the SMH backing off from its December peak. Here again, the volume pattern is of some concern. Volume has been generally light on the last portion of its rally. And yesterday's downturn came on the heaviest volume in two weeks. Add to that the fact the the daily RSI and stochastic lines are starting to weaken from overbought territory, and the odds for an upside breakout in the near future are greatly diminished. If the chips start to fall from here, don't expect too much on the upside from the rest of the market either.

Chart 5