The SnP500 has decisively broken through the uptrendline of August 2003 and did so on heavy volume. That event was clearly a bearish signal coming out of the last 4 months trading range. However, the action of the last 4 days suggests that the SnP is not willing and/or ready yet to break the Ice (Support) line indicated by the lower dotted red line.

But why? Well, the intraday swing low of Wednesday tested the swing low of 2 days earlier on lighter enough volume to show that this market is not ready for a break of support at 1090. The 3 days price action around 1090 could almost be considered a bullish spring of sorts and could very well be setting us up for an aggressive bounce going into option expiration next week. Volume and a negative price close simply did not come in when it had to on Wednesday. We must respect these signals and what this market is trying to tell us.

If a market or index fails to take out the previous lows, then it will try to take out the previous highs of similar degree. The lows and highs in this case are the creek and ice levels as indicated by the red dotted lines. So we must be open to the possibility now that the SnP will trek back up to try to take out 1150 and 1160 area. Near term though the most significant challenge is the 1115-1120 level which would put the Snp right back up to the bottom side of the August uptrendline which was broken with volume. It remains to be seen how strong a bounce the SnP can muster up here after showing us it lacks near term conviction to the downside. The upmove and mid range close and meager volume today (Thursday) was not very good follow through after yesterday's close, however, the fact remains for now that we are back inside the trading range after volume selling exhaustion.

I said in the April 28th BOT letter that "...the crude oil chart also is showing me that it wants go into 'acceleration mode' if a breakout actually occurs". This appears to be happening now as we see that crude oil has 'jumped the long term creek' which has now become support. For the breakout to be valid, we want to see good price spread and closes (perhaps 2 to 4 strong monthly price closes)

The chart below is monthly prices so I am making the assumption that the last half of May will see either stable or higher prices for oil. A strong monthly close for May will keep the 'valid breakout' case for oil intact. That is what to watch for here, the monthly close for May. Until we have the final monthly close for May, there can still remain the possibility that oil will create an upthrust from the long term creek level of 38. If we do get the upthrust, it would merely delay the ultimate breakout of 38 in my opinion.

The daily chart of crude really does still look like a price chart that is in acceleration mode. My forecast is for 48 crude by August 2004. That would put the price right under the dotted blue channel line seen in the chart below. Crude Oil could go as high as 60 which would correspond to an RSI value of around 80. That price and RSI level would be consistent with the case of crude oil being in a major bull move here. For now though, the major obstacle and target remains 48.

Previous to this week, the XAU has made 5 consecutive negative weekly price closes. I think XAU is now fishing for support. This weeks price close could very well further the case of a solid low being in place. As of Thursday we have a mid range close. If we stay at a mid range weekly close it could imply that the low of this week wants to be tested one more time. But a strong Friday upmove could create a more bullish weekly close and open us up to the possibility of some upside weekly follow through next week.

Support is seen from the apex of the large 2002-2003 triangle, the lower part of the long term channel line, from the neckline of the large reverse H&S pattern, and from the uptrendline on the XAU since late 2000. These are all significant areas of support for this mining stock index. The bull case for the mining stocks pretty much rests right on that longer term blue uptrendline since late 2000. That uptrendline must hold to keep the bull case for next 1.5 years intact.

The mining stock sector and indices are famous for their very deep retracements and seemingly impossible upside reactions from such retracements. This bounce could take us to 90-95 level over the coming weeks before being met with another downside reaction.