Oil and Banks 5/3/2011

Here's an update on that oil chart I showed a couple of days ago. I argued then that oil was at the top of a channel and was more likely to see $90 before $120 (reversion to the mean).

Last night, oil broke out above the top of the channel - and that's the main reason for the fall in the general market.

Oil can, of course, go exponentially upwards from here if geo-political problems in the Middle East escalate.

It is currently, however, at extremely elevated levels with a Relative Strength just below 80. Rarely does a stock/commodity/index reach 80 without falling.

But - anything is possible on the stock market, especially when fear and greed grip the market. And that's what is happening now.

I still think this will pull back. But the market doesn't care what I think. :)

Looking at the Banking Index, it is still holding above the critical 52 level.

Good luck

Red