Stocks drop, Oil makes a new high

oil0505.pngCrude oil made a new all time high today. The chart to the left is the USO crude oil etf. You can see how nicely the price bounced off the uptrending moving average, and how each time the short term momentum (double stochastic) turned up from the oversold level price quickly moved higher. I’ve been thinking this market is in a bubble and that fundamentals don’t warrant the high price, but the technical indicators have a different idea. If I could stop thinking and just follow the charts I would be much better off. The recent rebound in the dollar did trigger sell-offs in many commodities, but the oil market reacted only slightly and is now making new highs. Volume still seems to decline on pullbacks and picks up a bit on the rallies, at least in the etf, which is more continuous that trying to track the futures that roll over every month. I’m glad my bearishness on this market didn’t encourage me to fight the trend and go short. I did mention that as long as the trend indicator (blue lines) remains positive that I will not try to pick a top and short this market (even though I want to).
qqqq0505.pngThe stock indexes sold off today. Volume and range declined. The trend remains up, and momentum tried to turn up on the big up day last Thursday, but has since turned back down from the overbought territory, with a slight divergence. The light volume on this rally has me thinking that a pullback to the moving averages is coming. The big upmove last Thursday made that seem less likely, but I still think the possibility is there.
profile0505.pngIf you look at the market profile of the day session of the Nasdaq/QQQ you see the volume distribution profiles of the last three days. Actually, the first day on the left is just the top part of the big up day last Thursday. I cut the bottom off to save room. You can see the value area (purple vertical line) was overlapping since the up day. There has been little progress by the market of raising value, and today value and price range was an inside day. There was a bulge on the profile today, showing the market not being able to move out of range, so there is agreement of price and value as the market just rotated back and forth today in a tight range. Balance like this usually doesn’t last long. Something will come along to upset the balance and a directional move will result. With momentum now back to the downside it looks like a downside break is possible with an objective back into the area of the moving averages. If volume does not pick up on a break and the moving averages hold, a lower risk buy area could occur. Of course the break-out could occur on the upside. I’d watch volume carefully if an upside breakout should occur, as a light volume breakout could be a fakeout.