LOWER OIL CONTINUES TO SUPPORT MARKET -- DOW AND S&P 500 ARE TESTING AUGUST HIGHS

CRUDE NEARS TEST OF LOW 60s ... Energy futures fell again today and continued to lend short-term support to the rest of the market. Crude oil fell 75 cents to close at $63.34. Last Tuesday, I wrote that crude appeared headed for a test of initial support near $63. Chart 1 shows crude in the process of testing its 50-day moving average at 62.95. Its mid-August intra-day low occurred at 62.75 which is also being tested. That puts crude in the first test of its recent uptrend. Its 9-day RSI line is falling, but hasn't reached oversold territory at 30. Its daily MACD lines are also negative. That's causing some profit-taking in energy shares which were the day's biggest losers. The trend in the energy sector is still up, but very over-extended.

Chart 1

DOW AND S&P TEST OLD HIGHS ... Last Tuesday I showed the Dow Industrials closing above moving average lines and wrote that it would probably retest its recent high. It's in the process of doing that. Chart 2 shows the Dow Diamonds (DIA) testing its August high near 107. While its RSI line is nearing overbought territory, its daily MACD lines have turned positive. At the same time, the S&P 500 SPDR (SPY) has reached its early August peak. The SPY, however, has also reached its upper Bollinger band which sometimes causes short-term profit-taking. The line on top of Chart 3 plots the Bollinger bands as an oscillator (%B). At the moment, the short-term trend is still up but is overbought. A lot may depend on what oil does over the next few days.

Chart 2

Chart 3