Market ends a bit higher despite rebound in crude

qqqq0528.pngCrude rebounded today, and the stock indexes tried to sell off for most of the session, but were able to rebound late in the session, after several false starts, and were able to close with a gain. The chart of the Nasdaq/qqqq to the left shows the uptrend as defined by the blue and cyan moving average lines. The distance between those lines is coming together, indicating waning momentum for the uptrend, and there was a momentum divergence (as indicated by the green line in the lower sub-graph) that was a warning that the uptrend may be concluding. However the first level of support has so far held. I drew a dark red horizontal line indicating possible support. You can see to the left where there was some resistance (grey down arrow) that later became support, as indicated by the blue up arrows. I drew a yellow horizontal line at the peak from early May that sent prices down a bit. That level was taken out to the upside after about a week and a half, only to go back under that line as indicated by the divergence. Those that went long on the breakout of the yellow lines soon had their trades underwater, but this market was able to bounce off that red line, and is now sitting right near the yellow line, with the Nasdaq futures taking out that previous pivot by three ticks before settling back a bit on the close. If the yellow line should offer resistance and this market turns back down, that would leave a nasty (for the bulls) possible head and shoulders patter, at least if the downturn takes out the dark red line. However, momentum is oversold and turning up, with a slight reverse divergence (lower low on the indicator without lower low on price). The trend is still up, and although volume is still light, it did pick up a slight bit today. It seems the odds are tilting toward a test of the pivot high of May 19th. If the oil bubble were to deflate, the stock indexes could get quite a boost short term.
crude0528.pngThe oil uptrend is still quite strong. There has been a bit of a pullback the last few days that is forming a potential bull flag. The momentum divergence preceded and indicated this pullback (green line on the indicator in the sub-graph), however the trend indicator is still showing good strength. Even though this bubble could pop at any moment, the strong uptrend still has to be respected, or if not respected, at least being very careful to try to short this market. I would prefer to wait for the blue lines to cross down and then sell rallies back up to the declining lines. Waiting could be frustrating if this market collapses quickly and good trade location disappears. This down channel has pushed momentum to the oversold area. There could be more on the upside, which would frustrate those calling for a top, and stall the stock index rally. I don’t think on a longer term basis that the crude/stock index correlation is valid, but it seems to be valid right now on a very short term basis.

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