Oil Rises, Rally Fails

The importance of trend. We had stated over and over again "one day does not a trend make." Yesterday is a perfect example. Yesterday is also the classic news example. In this case news has a one day effect and then its over. News creates price fluctuation but it seldom reverses the intermediate term trend. You have heard us quote Joe Granville before who wrote, "News is generally for succkers." This is why it is so important to stay focused on trend and maintain mental flexibility. This is why we maintained our short term market trend down reading. One day up movement against the trend does not reverse the trend. This doesn't mean we ignore that up movement...why? Because if a second day of up movement is added then it becomes a short-term up trend and that may be actionable. However "one day does not a trend make." Oil rises over $4 a barrel this morning and the price action is still in the pennant that has been forming since June 6. Remember a pennant is is generally a short-term trend continuation pattern and it needs to break out of the upper falling resistance line to give a entry signal. Oil rises an the markets roll over giving back yesterday's gains and more. The DJIA is moving towards the 11,836 target we posted on Wednesday. It his a low of 11,875 already this morning. The S&P broke what yesterday was a potential double bottom and is moving towards the 1,296 target we posed Wednesday. It has hit a low of 1,322 early Friday. The Nasdaq and Russell reversed Thursday's bullish engulfing patten in early trading. A bullish spot on Friday morning is that ag related stocks CF, POT, MOS, AGU and MON rallied in the face of the market drop and now appear in bull flags on their charts. X is pushing through 185 resistance this morning. If this breakout is successful, the chart suggests a target of 205. Keep in mind today is options expiration Friday which often experiences extra volatility as traders unwind their option trades. We'll have more to post as the morning progresses...