Stocks rally on lower oil

oil0708.pngStock indexes rallied nicely today. This is so far a counter-trend move. This was coming off an over-sold condition with some short-term momentum divergences. The Nasdaq was a bit stronger. The drop in crude oil seemed to be the excuse for the rally. Negative sentiment toward stocks was a bit too thick, as well. Volume was decent. You can see the plunge in crude oil on the chart to the right. Price went right down to the lower moving average. If price can move either down or in a sideways channels for a few days, the trend lines could easily reverse to the downside. Perhaps this bubble has finally burst. The trend is still up and should probably still be respected. We have been down to the moving average area many times in the last few months, only to see prices rebound to new highs. There is no evidence yet that this pattern has been broken. The character of the upswings seem to be diminishing a bit, so to me the trend looks tired. Hopefully a new downtrend will emerge, but I must await more evidence. As I’ve said many times, it is foolish to try to pick tops. They always look so clear in hindsight. I will still wait for the trend to turn down before going short. I will either use the USO puts or the new double short DTO, when the time comes. If this bubble pops violently, I accept missing the first part of the move. I was more aggressive at one time, and would have been short on the momentum divergence. Now I wait for the trend change first. It is not as exciting as catching the top, but is much safer.