CRUDE OIL TESTS RECORD HIGH NEAR $55 -- NASDAQ DOESN'T BUILD ON YESTERDAY'S RALLY -- S&P 500 BREAKOUT LACKS VOLUME
CRUDE OIL TESTING OCTOBER HIGH ... Earlier today I wrote about how another drop in the U.S. Dollar was giving a big boost to gold and most other commodities. Gold closed $5 higher along with rising gold stocks. Both have achieved short-term bullish breakouts. The CRB Index climbed over 3 points to reach another 24-year high with the vast majority of commodity markets closing higher. Copper, silver, and heating oil were among the biggest gainers. Crude oil ended about 70 cents higher and continues to challenge its October high just over $55. Needless to say, a decisive close over that barrier would put the key commodity at a new record high. My only hesitation on the direction of the price of oil is the possibility that it might pullback or consolidate a bit before achieving a new high. But I believe it will hit a new high sooner or later especially with a falling dollar and most other commodities rising. Chart 2 shows its long-term trend since 1990. $40 had been a ceiling over crude all the way back to 1980. When that barrier was exceeded during 2004, $40 became the new floor. Crude bounced off that level during the fourth quarter of last year and is now challenging its old high. An eventual move into record territory seems inevitable. That's one of the reasons why I think that long-term rates will have to start moving higher before too long, and why I'm not that optimistic on the stock market.
Chart 1
Chart 2
CHIP BREAKOUT STILL ON HOLD ... While crude oil is testing its oil high (and the Oil Service Index testing its 2000 high), another important test is taking place in the semiconductor group. The Semiconductor Holders (SMH) continue to attempt a breakout through their December high near 35. So far it hasn't happened. Selling in Texas Instruments today helped weaken the group. Two things helping to drive the market higher recently was a pullback in oil and a rebound in the chips. There's clearly a tug-of-war going on between the two groups that should help determine the market's direction. At least for today, oil was the winner. Today's pullback in chip stocks also had a depressing impact on the Nasdaq market.
Chart 3
NASDAQ INDEXES SHOW NO FOLLOW-THROUGH ... Neither of the Nasdaq indexes was able to build on yesterday's close over their 50-day averages. The Nasdaq Composite and Nasdaq 100 indexes ended back below that resistance line. The only good news was that today's pullback came on lighter volume. The inability of the Nasdaq to move higher put a damper on the blue chip averages as well. The Nasdaq Composite has also backed off from initial chart resistance at 2100 which was its mid-February peak. It has to close above that level to turn its short-term trend higher. The Nasdaq 100 Shares (QQQQ) need to get through a similar barrier at 38.50 to give a short-term buy signal.
Chart 4
Chart 5
WHERE'S THE VOLUME? ... Last Friday's job report pushed the S&P 500 to a new multi-year high. But where's the volume? When a market achieves a new high in an ongoing uptrend, it's normal to see a pickup in trading activity. Friday's breakout, however, came on lower volume. Monday's gain saw even lighter volume. That combination tells me two things. One is that the price trend is still higher. The other is that there isn't much enthusiasm behind that trend. With oil rising, and little or no help from the Nasdaq market, I wouldn't be too enthusiastic either.
Chart 6
