OIL BREAKS DOWN!

Do I still need explain why the stock market is up today?

Yes, like I mentioned yesterday, crude oil was at a short term support level and if it breaks below that level, it would give a boost to the stock market. Indeed, oil took the biggest 6 days hit for the year and totally erased its intermediate bull trend. This is definitely a good point for an intermediate stock market rally but it will all depend on whether investors think the same way. How would we know if investors would think the same way? Through technical analysis of course! The Dow is still steeped in its intermediate bear channel even though it has rallied for so many days. Which means that this is still to be classified as a relief rally within a bearish framework... in other words, it is still not out of the mine field. We need to see investors convinction in the form of a bullish breakout through the ceiling of this bear channel on strong volume. That will tell us that investors are ready to get optimistic with the retreat in crude oil price. I would define the current ceiling at around its 30MA. Remember, even though crude oil is the biggest market driver right now, there are still many other factors that can add up to produce pessimism. In fact, the Dow is right on its 30MA resistance level right now. This is the first level that we need to see a strong breakout. If the Dow retreats tomorrow, it would suggest that investors continue to be short term pessimistic and requires more evidence and support.