Charting The Day's Action

The market pulled back today, but remains in constructive shape for another push higher. Merrill's technical analyst is looking for the SPX to find support in the 1340-1350 area, which coincides with my view of watching for support at the 50-day average (see chart above).

The market had become overbought, so it is normal for it to move sideways to down to alleviate this condition. But most of the pullbacks have come on light volume, which is also constructive.

The big move today was in oil (see chart 2). The oil ETF (USO) broke out to a new high on strong volume, as crude oil topped $110. I don't think this is so much fundamental as it is speculative money chasing new highs.

Be that as it may, I still think that these high oil prices bode well for the oil service stocks, and I am happy to be long the oil service ETF (IEZ) in our accounts.

Gold is also rebounding, but has not yet broken above its overhead 50-day. As such, I am still a tad concerned that it might face resistance at these levels. But on a break above that resistance, I would be looking to add to my gold positions.

The put/call ratio was again high all day, as was the ARMS Index. Taking a look at the volatility index (VIX) in chart 3 above, it has moved higher in the last couple of days, but has not convincingly broke above its overhead 200-day resistance.

If the VIX advance is halted and it turns lower, this could coincide nicely with another rally in the overall market. Let's just hope we don't get hit with anymore glaring negative headlines to spook investors just as they are starting to feel a little better.

long IEZ