Bulls Reclaims Lost Ground!

FUNDAMENTAL ANALYSIS
The bulls continued their rally today and reclaimed another 52.19 points of lost ground as crude oil prices took a beating due to a surprisingly large drop in demand by 5.5%! Yes, this was what I was talking a few days ago about how demand might drop faster than the drop in supply! As long as all of us do our bit to conserve energy, oil traders cannot take us for a ride! There was obvious panic amongst oil traders today as a larger than expected drop in oil reserve failed to provide any optimism. In fact, oil traders are taking a very defensive stance now as new oil reserves arrive in the States in June. A top up in supply along with a steadily declining demand makes for lower prices in the near future. I am hawkish on oil for the short term but hold longer term bullish view on oil until an alternate energy source becomes mainstream. For now, the stock market merely needed a short term drop in oil prices in order to fuel the growing optimism and to start a sustainable intermediate term rally. When that goes underway, the stock market would certainly be strong enough to buffer a rebound in oil until it becomes too painful to bear once again.

Skeptics continue to be disappointed today as the revision to Q1 GDP not only came in positive once again but came in 50% better than expected! So, the economy is not only NOT going into a recession, it is steadily growing once again! Yes, I know numbers can sometimes be doubtful as well but for now, numbers are certainly the most authoritative information anyone can get.

TECHNICAL ANALYSIS
A nice but again modest follow up in the Dow today, rising along its regression channel. Short term momentum as measured by my short term technical indicators have turned up with the daily 30MA acting as immediate resistance and the 12500 level as immediate support. There are no indications that the Dow is going to make an explosive breakout anytime soon and we may just see the Dow range bound until crude oil price form a significant and definite break from its currrent intermediate uptrend. Even though crude oil retreated significantly these few days, its intermediate uptrend is still solidly intact. This continues to be largely uncertain and speculative times which justifies the use of a speculative but risk limited instrument such as stock options.