OIL RETESTS RECORD HIGH AT $55 -- OIL SERVICE HOLDERS ARE TESTING 2000 HIGH --
BUT CLOSES IN LOWER END OF DAY'S RANGE ... The price of crude rose all the way to $55, resulting in a test of its all-time high reached last October. After climbing more than $2.00 intra-day, however, it settled up only .52 cents and in the lower end of the day's range. That may suggest that some traders were taking profits up against that potential resistance barrier. Crude has also gotten overbought on a short-term basis. It's too soon to tell if the afternoon selloff was the start of a more substantial pullback or just a minor pause on the way to new highs. Whichever is the case will have an important bearing on the direction of energy stocks and the stock market. If crude backs off from $55, that would give a short-term boost to the stock market. If it closes above that barrier, my guess is that the stock market would react badly.
Chart 1
OIL SERVICE HOLDERS BOUNCE BACK ... Energy stocks bounced along with the price of crude today. Chart 2 shows the Oil Service Holders staying above its first line of defense at its 20-day moving average. Upside volume, however, was on the light side. The OIH is going through an important test of its own. Chart 3 shows that the OIH is challenging major resistance at its 2000 high. That was why I expressed some caution on this group earlier in the week. I believe that new highs will be achieved. I'm just not sure if it will pull back first. I suspect we'll know shortly. I'd keep an eye on both charts -- crude oil and the long-term chart of the Oil Service Index. Whether or not they're able to break through to record highs may determine the direction of the stock market.
Chart 2
Chart 3
S&P 500 STILL TESTING DECEMBER HIGH ... The market had a mixed day today. The blue chip averages managed a modest gain, while the Nasdaq fell. Chart 4 shows that the modest gain in the S&P 500 SPDR came on slightly lighter volume. Its intra-day chart, however, shows a slight downside bias to today's trading.
Chart 4
Chart 5
5-MINUTE BARS SHOW HEAVIER SELLING ... The 5-minute bars in Chart 5 show a more negative bias to the day's trading than is seen on the daily bars. After gapping up on the open today on light volume, the SPY sold off to noon on much heavier volume (see red bars). A burst of buying around 12:30 helped it regain two-thirds of its morning drop. Volume dried up, however, during that three hour rally attempt. In the last half hour of trading, the SPY sold off on much heavier volume. The dashed horizontal line shows it closing just above the previous day's close. But it closed beneath its opening price. It's not a lot to go on. At the very least, it suggests not putting too much confidence into today's higher close. It seems that the continuing strength in crude oil has prevented the S&P 500 from achieving an upside breakout. All the more reason to watch crude very closely over the next few days.
