Chart Signals Point To Oil Rally

NEWS: The major indices finished split and investors were happy with the outcome considering the move in oil today. The Dow closed with a gain of 12 points or 0.1%. The S&P 500 added 3 points or 0.3%. The NASDAQ lost 8 points or 0.4%. The small-cap stocks that have been so strong recently, fell as the US Dollar weakened; the Russell 2000 dropped 0.9%.

THE BOTTOMLINE: With oil rising $6 today it was a miracle that stocks did not fall by large amounts. In the end it was the commodity stocks that helped the market finish near the unchanged level. Along with the explosion in oil was a rally in gold that sent the yellow metal up $22 on the day. On top of that, the agriculture commodities had a great day as corn closed at a new three-week high. The iPath Dow Jones-AIG Commodity ETN (DJP), which has exposure to all of the above, closed up 3.5% on the session.

The biggest drag on the markets today was the bank and technology stocks. The weakness in the NASDAQ was brought on by selling in big tech names such as Nvidia (NVDA) and Ebay (EBAY). One of my favorites of the big-cap tech names, Research in Motion (RIMM) had a solid day, posting a gain of 1.6%. Another of my favorites is also a big-cap tech name and had a good day also, but of course I cannot give away all our ideas.

THE CHART TOLD THE STORY

NEWS: For subscribers to The ETF Bulletin (www.theETFbulletin.com), it was a good day as our most recent trade alert rallied 4.5%. Yep, our play on oil worked out just as the chart had told us.

THE BOTTOMLINE: In the chart above I have highlighted the handful of buy signals that all occurred at the same time. It began with the consolidation above the $90 price support level, where there was also the 200-day moving average (blue line). The ETF had traded above the 200-day moving average for over a year and the $90 area just happened to fall just above it. At the same time the RSI crossed out of oversold territory, signaling a crossover buy signal. There was also the RSI divergence, which occurs when the ETF makes a new low, but the RSI does not. This signals the ETF is strengthening and when this occurs on support it is a very reliable buy signal. When all the indicators are combined it leaves us with a high reward-to-risk buy setup. BUT, with the potential for oil to drop down to $100 it was an aggressive trade. Also, this type of technical setup is what I call a “swing trade”, meaning it could last a few days for a couple of weeks. I will let the chart dictate the holding period. Because it was a swing trade, this play was only for the Aggressive Portfolio of The ETF Bulletin and not for the long-term investor.

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