MARKET REMAINS STUCK IN TRADING RANGE -- OIL SERVICE INDEX IS TESTING ALL-TIME HIGH -- ENERGY STRENGTH AND TECHNOLOGY WEAKNESS KEEPS MARKET ON DEFENSIVE

NYSE AND DOW ARE STUCK BELOW RESISTANCE ... So far this week I've shown three market leaders -- the Nasdaq Composite, the S&P 400 Midcap, and the Semiconductor (SOX) Index -- all backing off from chart resistance near their spring highs. That loss of leadership has prevented any further advances in the rest of the market. But those aren't the only indexes that have backed off from resistance levels. Two of the market laggards -- the Dow Industrials and the NYSE Composite Index -- are having trouble getting through their early April peak. Chart 1 also shows that the NYSE is meeting resistance at the 62% retracement point of its March/May decline. Chart 2 shows the Dow struggling with resistance near 10,600. That keeps the overall market stuck in neutral territory. Longer term indicators continue to give mixed signals as well. In addition to selling in semiconductors and the Nasdaq, the market encountered some other problems. One was a sharp drop in transportation stocks owing to downgrades in the trucking sector. Another was the jump in the price of oil and energy shares.

Chart 1

Chart 2

OIL SERVICE INDEX TESTS ALL-TIME HIGH ... Speaking of oil stocks, I'd suggest keeping an eye on the monthly chart of the Oil Service Index. That's because this week's gain has put it right up against the highs reached in 2000 and late 1997. That represents a major test of the long-term energy uptrend and might be a wild card in determining market direction. If the OSX is able to break through those old highs, that would be a major bullish breakout in the oil service group. That would also hint at much higher energy prices, which wouldn't be good for the rest of the market or the economy. While energy was the top sector this week, technology was the weakest. That combination is probably enough to keep the market stuck in its current trading range.

Chart 3