ENERGY SPDR FORMS EVE-ADAM DOUBLE TOP -- OIL SERVICE HOLDRS BREAKS THIRD FAN LINE -- VOLATILE MATERIALS SPDR MOVES BACK INTO GAP ZONE -- CRUDE MOVES LOWER ALONG WITH STOCKS -- OIL FUND ETFS HEAD FOR SUPPORT TESTS

ENERGY SPDR FORMS EVE-ADAM DOUBLE TOP... Link for todays video. With two equal highs in April and a support test in May, the Energy SPDR (XLE) has a double top working. Chart 1 shows XLE forming an Adam and Eve Double Top. This particular pattern comes from Thomas Bulkowski, author of The Encyclopedia of Chart Patterns . Said patterns form with two different peaks. One peak is a sharp 1-3 period reversal (Adam). The other peak is marked with an extended peak that last a few periods (Eve). XLE formed an Eve top with the 4-5 day consolidation around 80-81 in late March and early April. An Adam top formed with the Dark Cloud pattern three days ago. Double tops are potential reversal patterns until confirmed with a break below the intermittent low. A break below 75 would confirm this pattern and target further weakness towards 69. The height of the pattern (81  75 = 6) is subtracted from the support break for a projection (75  6 = 69). The indicator window shows the Price Relative with a lower high and break below the April low. XLE showed relative strength as the Price Relative rose until late March. With this recent breakdown, XLE is now showing relative weakness.

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Chart 1

OIL SERVICE HOLRSS BREAKS THIRD FAN LINE ... Chart 2 shows the Oil Service HOLDRS (OIH) moving sharply lower the last three days. The ETF gapped up in mid April, but failed to hold this gap with the decline back to support. It is also possible to draw three fan lines extending up from the November low. The ETF broke the third of these lines with this weeks decline. A major support test is now at hand for OIH. Support in the 150 area stems from the February-March-April lows. The indicator window shows the OIH:XLE Ratio. OIH has been underperforming XLE since late February, which is when the Price Relative peaked.

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Chart 2

VOLATILE MATERIALS SPDR MOVES BACK INTO GAP ZONE... The Basic Materials SPDR (XLB) led the market lower with a sharp decline for the third day running. Chart 3 shows the ETF with three peaks in the 40.5-41.5 area since February. A Bearish Engulfing marked the February peak, a Dark Cloud marked the early April peak and a Bearish Engulfing formed three days ago. XLB has been all over the place with some big swings in 2011. The ETF forged higher highs in February and early April as well as lower lows in January and March . The blue dotted line marks the 2010 close. XLB is just above this line and still showing a gain for the year. As with XLE above, the April low marks an important support level. A break below this level would signal a failure at resistance and put the ETF in the bottom half of the 2011 range. This would make the cup half empty. The indicator window shows performance lines for the Basic Materials SPDR (XLB) and the S&P 500 ETF (SPY). Both are up over 10% the last six months. XLB is performing in line with the benchmark. Chart 4 shows the Metals & Mining SPDR (XME) with key support marked at 70.

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Chart 3

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Chart 4

CRUDE MOVES LOWER ALONG WITH STOCKS... Oil remains in a clear uptrend, but weakness in stocks and a rise in inventories put downward pressure on crude this week. According to the American Petroleum Institute, oil and gasoline inventories rose in the latest reporting period. Today, the Energy Information Administration (EIA) also reported a rise in inventories, which further weighed on oil prices. Chart 5 shows West Texas Intermediate Continuous Futures ($WTIC) in a strong uptrend since the late August low. The surge from late February to early March marks an almost instant risk premium due to unrest in the Middle East and North Africa. Prices continued higher after this initial surge with oil moving above 110 in April. I would attribute the advance above 110 to strength in the stock market, which bottomed in mid March. The S&P 500 hit a new high along with West Texas Intermediate last week. With weakness in stocks over the last three days, oil is getting hit hard and oil related stocks are following suit. There are two important support levels to watch for West Texas Intermediate. First, broken resistance, the April low and the 38% retracement mark support around 105. Second, broken resistance, the March low and the 62% retracement mark support in the mid to upper 90s. Note that this is an end-of-day (EOD) chart that will be updated after the close.

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Chart 5

OIL FUND ETFS HEAD FOR SUPPORT TESTS... The 12-Month US Oil Fund (USL) and the US Oil Fund (USO) both moved sharply lower the last three days. Chart 6 shows USL with two reaction highs around 51. It is possible that a small double top is taking shape. This pattern is also of the Adam and Eve variety. The first peak is a sharp two day affair (Adam) and the second peak is a flat 3-4 day affair (Eve). A move below 38 would confirm this pattern and target further weakness towards the next support zone around 44-45 . Chart 7 shows USO peaking around 45 for the second time in April and falling with two long black candlesticks. First support is marked at 42 from the April low. Second support is set at 39, which is marked by broken resistance and the March low.

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Chart 6

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Chart 7

As the name implies, the 12-Month US Oil Fund (USL) is based on futures contracts extending out 12 months. In contrast, the US Oil Fund (USO) is tied to near term futures contracts. Without getting too much into the make up of these funds, we can see a clear difference in performance . The lower indicator windows shows West Texas Intermediate Continuous Futures ($WTIC), the US Oil Fund (USO), the 12-Month US Oil Fund (USL) and the iPath Oil ETN (OIL). The two ETFs (USO, USL) and the ETN (OIL) underperformed West Texas Intermediate. The copies are never as good as the originals. Of note, USL kept up the best over the last six months. You can read more on these at www.unitedstatesoilfund.com and